Balancing College Costs and Retirement Goals: A Smarter Planning Framework for Families

When it comes to financial priorities, few things tug at the heart (and the wallet) more than paying for a child’s education. But for many families, the desire to support higher education collides head-on with an equally urgent need: saving for retirement.

That’s where strategy, not sacrifice, must lead the way.

1. Retirement Comes First (Always)

It may feel uncomfortable to prioritize your own financial future over your child’s college dreams, but it’s critical. Loans, grants, scholarships, and work-study opportunities exist for students. There are no loans for retirement.

Start by asking:

• Are you currently on track for your retirement income goals?

• Have you maxed out tax-advantaged vehicles like IRAs or employer-sponsored plans?

• Are you taking advantage of catch-up contributions, if eligible?

If not, education contributions may need to wait at least until your foundation is solid.

2. Choose the Right Tool for the Job

Not all education savings accounts are created equal. Understanding the pros and cons can help you make smarter funding choices:

• 529 Plans: Offer tax-deferred growth and tax-free withdrawals for qualified education expenses. New rules also allow some unused funds to be rolled into a Roth IRA under specific conditions.

• Trump Savings Accounts (new): Automatically created for children born 2025–2028 with a $1,000 government seed. While tax-deferred, these accounts come with restrictions and unclear long-term benefits.

• Custodial Accounts (UGMA/UTMA): More flexible, but count as a student asset on FAFSA and can reduce financial aid eligibility.

• ABLE Accounts: Ideal for families with children who have disabilities, offering tax advantages and protecting eligibility for government assistance programs.

Choosing the best fit depends on your child’s needs, your timeline, and your tax strategy.

3. Don’t Let Student Loans Derail Retirement

Too many parents borrow from their 401(k) or take on PLUS loans to cover gaps, decisions that can create long-term damage to their own financial security. Here’s why:

• 401(k) loans reduce future compound growth

• Withdrawals may incur penalties and taxes

• Increased income from withdrawals can reduce FAFSA aid eligibility

• Loan repayment later in life can stretch budgets during retirement

Instead, explore payment plans, work-study, community college pathways, or clear family expectations about cost-sharing with your child.

4. Start the Conversation Early

The most powerful tool you have isn’t a tax strategy; it’s communication.

Discuss college expectations in middle school. Cover topics like:

• How much support can you offer

• What fields of study align with employability

• The importance of finishing in four years

• Loan limitations and responsibilities

• Ask about high school programs that earn college credit

This helps set realistic goals and gives your student time to plan and explore scholarship opportunities or part-time work.

Final Thoughts

Education and retirement planning don’t have to be at odds, but without a proactive, process-driven plan, it’s easy to shortchange your future for short-term needs. The key is clarity, not compromise.

Want help creating a plan that supports both your child’s future and your own?

Contact Kaydan Wealth today or call 800-638-6900 to start your bigger, bolder retirement strategy.

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