Investment Basics: College and Retirement: Can You Save for Both Goals?
November 13, 2017
By Colin OShea
How much will tuition cost when your child is ready for college? By the time freshman year rolls around, college expenses may have skyrocketed. So it makes sense to start saving for your child’s education as early as possible.
However, you probably have another goal that’s going to require significantly more savings than college: your own retirement. While saving for a retirement that’s far in the future may seem like a lower priority, keep in mind that your child can always borrow money to pay for an education. But no one is going to give you a loan to fund your retirement.
There’s no getting around it. You should be saving for both goals at the same time. Easy? Of course it’s not. But it’s not impossible either.
On your own with retirement saving. Once you retire, you may receive Social Security benefits. You might even be entitled to pension benefits from a past or current employer. However, these sources alone might not provide enough income for a comfortable lifestyle all throughout retirement. Saving as much as possible in an individual retirement account (IRA), an employer’s qualified retirement savings plan, or an individual investment account can potentially help you accumulate a tidy nest egg.
And there’s more good news. Assets in IRAs, 401(k)s, 403(b)s, and similar plans generally won’t be included when colleges calculate your expected family contribution to education costs. What’s more, if you’re short on cash for college, you can withdraw money from your IRA penalty free to pay qualified education expenses.
Sock it away in an education savings plan. You may be able to accumulate substantial savings for college if you start saving while your child is young. Section 529 plans* allow savings to grow tax deferred and offer tax-free distributions for qualified education expenses. Funds in Section 529 plans are typically treated as parents’ assets for financial aid purposes. The money must be used for qualified education expenses of the beneficiary (or certain other relatives of the original beneficiary) to qualify for tax-free withdrawal.
With a little planning, you’ll increase the likelihood that you can save enough money for all your goals. Contact a Security National Bank Wealth Management professional for guidance.
* Certain benefits may not be available unless specific requirements (e.g., residency) are met. There also may be restrictions on the timing of distributions and how they may be used. Before investing, consider the investment objectives, risks, and charges and expenses associated with municipal fund securities. The issuer’s official statement contains more information about municipal fund securities, and you should read it carefully before investing.