Saving for multiple long-term goals can be tricky. You may want to save for your kids’ college tuition but also for your own retirement. The reality is that you might have to choose between the two. Making this important decision will be challenging. Before taking the leap and investing in a 401(k) or 529 plan, use these facts to guide your choice.
You Have Options for College
Not enough cash to pay for tuition? Your student can seek scholarships, apply for financial aid or participate in a work-study program to help cover their higher education costs. A recent Sallie Mae report found that students used a combination of income, savings and loans to cover 30 percent of the cost of their educations. Plus, scholarships and work-studies are resume-builders.
You Lack Similar Options for Retirement
In contrast, there are no loans to cover retirement necessities such as housing, utilities and groceries. In fact, contributing to a 401(k) or IRA can help offset any shortfalls between your expenses and your pension or Social Security payments. Continuing to work into your golden years might also be an option, but beefing up your retirement savings is a better one.
Focus on Saving in General
Rather than fretting about saving for college or retirement, focus on establishing a nest egg. While some investments are subject to strict rules — a 529 plan must be used for education; funds from a 401(k) can’t be withdrawn until age 59 ½ without penalties — other investments offer more flexible options (although maybe not the same tax advantages).
Retirement Savings Beats College Savings
Investing in an IRA makes it possible to start saving now and decide whether to allocate those funds to higher education or retirement in the future. This is because you have the option to withdraw funds penalty-free, so long as they’re used for tuition, books or other qualified educational expenses for a spouse, child or grandchild.
From 2013 to 2017, the average amount that parents withdrew from retirement savings to pay for college education jumped from $2,710 to $4,321. Although withdrawing funds from an IRA to cover qualified educational expenses is possible, only about 5 percent of families use this option.
Mapping Your Personal Savings Plan
Saving for your family’s future is important. Talk to a Farm Bureau agent about the best decision for your own financial situation.