My wife's parents paid for the four years she spent in college leading to her bachelor's degree. I paid my own way. We both went on to earn masters degrees, which we paid for ourselves. In the meantime, we had been saving for retirement, as well as college for our daughter. My wife is very adamant that we pay for her college, as this was done by her parents for her. Clearly we have differing opinions on this.
Our first option is putting retirement savings over college savings. There are a few reasons why you might choose this option:
- You have no children, and don't plan to have any.
- Your children are young, and you have time to grow a college fund for them.
- Your children are at college age and have offers for scholarships or grants.
There are other reasons, such as already being excessively wealthy, and not needing to choose between college and retirement savings. Of course, if this were the case, there would be no reason for you to read this article, unless you simply enjoy reading anything you can whenever and wherever. I don't like you in that case. Just so you know.
If you are going to save for retirement over college, you'll need to look at your current savings structure, of course. Make sure you are saving at least as much as your employer is matching for 401(k) plans. My personal suggestion in this case would be to take what you have left for savings and split it between IRAs (Roth IRAs and Traditional IRAs) and a college fund (see next section for college savings options). Since you've already got a 401(k) set up, this puts retirement over college.
Your little one's education is more important to you than your retirement? Once again, there are various reasons this could be the case, such as having a defined pension plan, and getting close to retirement. So, how to split the savings? Here, my suggestion would basically be the opposite of the above; if you're still saving in a 401(k) and/or IRAs, you can bring down the amount you're putting into those. Then max out the college savings plan you are using.
Speaking of college savings plans, what's available? If you haven't heard about the 529 plan, definitely give it a look. They offer savings on taxes; there is no tax when you withdraw it for educational costs. These are federal tax savings, but most states give state income tax savings when you get the 529 offered by your state.
Ah, a fair split down the middle. And a pretty simple process (as finances go) for savings options. Whatever you've got going into your retirement savings, put the same amount into a college savings account. Actually, you might want to put a little more in the college savings. Why? When it comes time for your college student to fill out the FAFSA, the government will look at your savings with less scrutiny than your child's. This gives your child the ability to qualify for more grants.
OK, so you don't think junior's cut out for college. You shouldn't have dropped him on his head that one time! I'm kidding on both counts here, people. But it's true, not everyone chooses to go to college after high school. If you and your child have talked about the military, a trade school, or following in the family business, then college may not be as important. Or, you just might not have the resources to help pay for college. Your child can still get student loans, scholarships and grants, and work while going to college.
Now, you already know what I'm going to say to start off here: The best answer is the one that you are most comfortable with, and works best with your own personal financial situation. Unfortunately, almost everything in personal finance comes down to this answer. But hopefully, you've gained a little more insight on how to make that personal decision with the information I've provided here.
My wife and I personally have decided to save for college, but not the entire amount; the kiddo's gonna get a grant or a student loan. We want to help, but we want her to learn early on that life's not a cakewalk. Since both my wife and I have a defined pension plan, retirement savings is a bit easier for us than for those that have only defined contribution plans as options. So, we have a little more leeway in the way of saving for college.