Funding Retirement AND Your Child's Education

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Sep 01, 2022

Should you prioritize your own future over your child’s education? This is an emotionally charged question that leads many parents to fund college at the expense of their own retirement. However, with proper planning, you may be able to fund your retirement and still offer financial support for college.

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Tips to save for retirement and college

While building your nest egg takes priority, there are also several options to financially support your child’s college education. Take a look at the following suggestions to save for both:

  • Take advantage of catch-up contributions. Once you have turned 50, you can start contributing more money to your retirement accounts. In 2022, you can save up to $27,000 in a 401(k) and up to $7,000 in an IRA if you are over age 50.
  • Use your time wisely. Start early to use time to help grow the value in your retirement and education savings accounts. Take advantage of employer-provided 401(k) or similar retirement programs, especially if there is an employer match. After that, look into a Coverdell Education Savings Account and a 529 plan to maximize your education savings potential.
  • Consider grants, scholarships, and finance programs. Start researching early, as there are college scholarships available for children as young as 5 years old!
  • Research all college options. In-state public colleges are generally less expensive than private or out-of-state colleges. If an out-of-state college is preferred, check to see if they have reciprocity agreements with your home state.
  • Look into work-study programs. Many schools provide part-time jobs for students to help them pay for school while keeping up with their studies. These programs vary based on a student’s financial needs.

Keep in mind: Assets in retirement accounts do not affect financial aid

When you complete the Free Application for Federal Student Aid (FAFSA), most money and assets owned by parents impact the student’s eligibility for financial aid. However, the value of retirement accounts (including 401(k)s, Roth IRAs, and traditional IRAs) are often not counted when determining the expected family contribution.

With proper planning, there are options to help you prioritize saving for retirement and still financially support your child’s education. Call if you would like to discuss the most beneficial and tax-savvy options for your situation.

As always, should you have any questions or concerns regarding your specific situation, please feel free to call. The accountants and investment advisor representatives at Terry Lockridge & Dunn and World Trend are ready to help you. They can be reached in Cedar Rapids at 319-364-2945, or in Iowa City at 319-339-4884.

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