The College Funding Trap

Kate Hennessy CFP® |

Many parents who are saving for retirement and college, often fall into a trap – how do you help your kids pay for college while planning for your retirement?  It’s like the airplane safety brief: put your own mask on first before helping others. As someone who has two teenage daughters with college dreams on the horizon, here are three steps to help you plan and save for retirement while helping your child pay for college.

  1. Save for Retirement First. Start saving as early as possible during your working years. Set up your automatic contributions from your paycheck to your retirement accounts (i.e. 401k, 403b, IRA). Most individuals begin saving when they enter the workforce, so maxing out a workplace retirement account (401k, 403b) can be a daunting task while paying for rent, etc. If you can’t contribute the maximum amount to your workplace retirement account (i.e. for 2026, max. amount is $24,500), then contribute enough to access any available employer match.

  2. Open a 529 Plan When Your Baby is Born.  Consider a 529 College Savings Plan and set up a monthly contribution to the plan.  The next 18 years will go fast and the sooner you start saving and investing for college the sooner you can take advantage of compounding interest. If you are lucky enough to have an exceptionally high-income year, consider “front loading” or contribute a large sum to the 529 Plan.  Front loading can maximize early market growth and allow you to “pump the brakes” in down income years.
  3. Talk to Your Child About Costs & Expectations. Sharing a spreadsheet with your kids about the cost of college, its return on investment for their future, and a discussion with your kids about being invested themselves in the costs of college should be part of the college planning process.

There is no right or wrong answer for any one family. We see the full range of approaches, with some clients wanting to cover their kids’ college expenses, while others want their kids to pay for college themselves, with most clients falling somewhere in between.