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Save For Retirement, College or Both?

Q: What are your thoughts re: balancing retirement savings with college savings? I’m saving for my retirement, yet have no savings allocated for my child’s college expenses. -Vera, NY

A: Vera, I may catch some flack for this, but I think you should worry about funding your retirement program (401(k) and IRAs) first - before you worry about saving money for college. This may sound kind of harsh, but junior can always get a job, take out a loan, perform college work study, get a grant, get a scholarship, perform military service and utilize many ways to fund his college education. You, on the other hand, cannot finance a 30+ year retirement on loans – you need cash.

After you’ve accomplished the above, if you still have additional cash flow available to save more, then I’d consider establishing a college account such as the New York 529 College Savings Program administered by Vanguard. As a New York State taxpayer, you can deduct up to $5,000 of contributions to your account ($10,000 for a married couple filing jointly) on your state income tax return each year. Please talk with your accountant or tax preparer for specific information relative to your situation.

Bill’s Bottom Line: If you only have enough money to set aside for one goal, and have to choose between saving for your retirement or a child’s education, my vote is for your retirement. Good luck and good saving. To learn more about the New York 529 College Savings program, click here. As an alternative, call 1-877-NYSAVES (1-877-697-2837) Monday through Friday, 8 a.m. to 9 p.m., ET.

Bill Losey, CFP®, CSA, America's Retirement Strategist®, is On The Money's the resident retirement planning expert. He has been named one of America’s Top Financial Planners and is the author of Retire in a Weekend! The Baby Boomer’s Guide to Making Work Optional. He also publishes Retirement Intelligence, a free weekly award-winning newsletter. Bill can be reached online at www.MyRetirementSuccess.com.