Saving for Your Kids' College Without Delaying Retirement Contributions

Coin Jars Savings

It’s often seen as the ultimate dilemma for parents: Do I save for my own retirement or for my child’s education? Parents see this as having to decide between protecting their own future or that of their children. The good news is that you don’t have to choose between saving for retirement and saving for college. You can do both — if you plan ahead.

Create a Game Plan

The first step toward saving for college and retirement is to come up with a game plan. Decide where you want to keep your savings and come up with a goal. Do you want to retire when you are 65 or work longer? Do you want to make sure your kids have zero student debt when they graduate from college, or do you want them to finance some, or all, of their education?

Many financial experts will suggest parents create a game plan for their retirement savings first and then focus on saving for college for their children. That is because there are more options for you and your children to pay for an education than there are for retirement.

Students can complete the Free Application for Student Aid (FAFSA), apply for scholarships, or borrow from an NC Assist Loan. These options can help supplement any gap between saving for college (for example, with an NC 529 Account) and the cost of tuition. However, there are no similar options when it comes to paying for retirement.

Your Retirement Savings Plan

Make sure you are on track with your own retirement goals. Figure out how much you want to set aside each month for retirement, and the remaining cash can go toward saving for college. Remember, it’s never too early, or too late, to start saving for both.

Company Retirement Plan

If you’re not sure where to start saving for retirement, see if your company offers a match for a retirement plan (like a 401(k). Take advantage of the full match — after all, this is free money for you. If you can’t afford to meet the match, start where you can and work up to it. Any salary increase should go toward your 401(k) until you meet the company’s match.

Traditional or Roth IRA

An individual retirement account (IRA) is an account set up at a financial institution that allows you to save money for retirement with tax advantages. A traditional IRA allows you to make pre-tax contributions, and you pay income tax on withdrawals in retirement. With a Roth IRA, you contribute funds you’ve already paid taxes on, and you are not taxed when you take out the money during retirement. A financial advisor can help you determine which type of IRA is right for you.

College Savings Plan

After getting your retirement plan in place, it’s time to create a plan for saving for college. Estimate how much money you can securely set aside each month and get started. Decide how much you want to save and create a goal. If your monthly estimate doesn’t add up to your desired goal, that’s okay. Remember, you can get started now and contribute more later.

NC 529 Plans

NC 529 Plans allow you to save post-tax dollars for education. States, including North Carolina, sponsor these investment programs, which include a mixture of stock and bond mutual funds. Earnings from NC 529 Accounts grow tax-free if the money is used for qualified education expenses. NC 529 money can also be used nationally at any federally approved college or university, not just in North Carolina.

An NC 529 Account allows you to add money as you go. So, you can create an account anytime and make contributions as you feel comfortable. You can set up a monthly withdrawal from your bank account, make an extra contribution if you get a bonus, or ask friends and family members to gift contributions. The current contribution limit is $550,000 and is assessed annually.

Coverdell Education Savings Accounts

Like an NC 529 Account, money grows tax-free with a Coverdell ESA if it is used for educational purposes. However, there is a $2,000 per year contribution limit, so this may not allow you to meet your financial goal.

Traditional Savings Accounts

It is easy to open a traditional savings account through your local bank, but funds do not grow tax-free. You can contribute whatever and whenever you like, but it is easy (and tempting) to take out the money. While you are saving for college, you may be tempted to take out money from a traditional savings account to pay for a family vacation or other expenses.

Start Saving for College Now

An NC 529 Account makes saving for college easy when you are also saving for retirement. You do not need to sacrifice funding your retirement while saving for college. Create a game plan, figure out your goals, and decide which types of savings are right for you.

Are you ready to start saving for college with NC 529? Enrolling takes just a few minutes. Click here to learn more about NC 529 and get started today.

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