Balancing your savings goals: how to save for both college and retirement

Posted at 11:03 AM, Oct 10, 2018
and last updated 2018-10-10 11:03:35-04

For parents, it can feel like a juggling act trying to save for college for your child as well as your own retirement.  To help you out, News 3 spoke with a financial adviser to learn the best ways to balance the two.

Michael Mason, president of Mason & Associates, says you should always begin by having a conversation.

You should discuss how much money you'll need for retirement and what you can afford for college, including public versus private schools and in-state versus out-of-state.

You should also talk about some of options to help fund college expenses: having your child work while in college, earn scholarships, take out and repay loans over time, go to a less expensive school or live at home during college.

After you have those conversations, Mason says should be saving in this order:

  1. Create an emergency fund
  2. Match your company's 401(k) contribution
  3. Save money from the child tax credit and put into a college savings plan

Under the new tax code,  parents get $2,000 back through the child tax credit.  If you put at least $137/month of that money into Prepaid529, it will buy two years of community college.

If you dip into your retirement savings to pay for college, there can be some big consequences.  Paying for college from retirement funds can set back your investing up to 10 years in the growth of those retirement funds.

Mason says it depends on your situation, though.

"Many people in this area have pensions: military, federal and state.  They have more flexibility to dip into their cash savings than do people that are just depending on social security and what they've saved alone.  So we're not afraid, if you've got a pension, of maybe using some of that Roth IRA that you've saved for college, but again that's unique to this area," Mason said.

Two other ideas for preparing and paying for your child to go to college:

  • Talk to relatives about putting money into your child's college savings plan instead of always buying toys as gifts.
  • Prepare your child to be financially responsible when they are on their own by helping them learn how to budget and the basic principles of money management.  For instance, if considering a checking account, talk to your son or daughter about overdraft fees.