Saving for my retirement vs. college
Think of it this way. Your child will always be able to get student loans. No one is going to give you a loan when you’re retired, however. The single biggest burden you can leave a child is having to support their parents for 25 years (the average time spent in retirement) because you didn’t save enough for retirement.
To give you an idea of how much more of a burden having to support parents in retirement is, the cost of 25 years of retirement can run from $600,000–$1,000,000. Don’t leave your children with that burden — save for retirement first!
Will my child get financial aid?
How much aid you can get from the school and the federal government depends on several factors, factors like your income, how many children you have in school, how much you’ve already saved, how generous the school is, etc.
It’s complicated and jargon-heavy, so we recommend you use this free calculator to figure out how much you’re eligible for without getting overwhelmed.
So how much do I need to save?
The average total cost (source) for the 2015–2016 school year:
- A four year private college costs $191,324, or $47,831 a year
- A four year state school costs $96,244, or $24,061 a year
If you would like to a custom calculation based on your state and situation, check out this College Board calculator. Remember, while those costs are high, the costs of your retirement are far higher.
I heard I should use a 529 account?
State governments offer 529 plans for saving for college. If you save for college in a 529, the funds won’t be taxed (unless you withdraw the money for something other than college). In addition, many states have special perks (like other tax breaks) for saving in their 529 plan.
Even with tax breaks, not all 529 plans are created equal—and some states have lower fees than others. Check out this comparison tool - it'll help you figure out which state is best for you.
Covedell accounts vs. 529 account
Covedell accounts are another type of education savings account you may have heard of. Here's a quick overview.
Pros of Covedell - Coverdell lets you to pick and manage your own investments. Coverdells can also be withdrawn tax-free for both K-12 private school and college expenses, while 529 plans are limited to college saving.
Cons of Covedell - Has a variety of contribution, age, and income restrictions that 529s don’t have. Managing your own investment portfolio can also be hard!
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