For millions of parents, the dream of sending their children to college comes with an uncomfortable dilemma: how do you pay for college without compromising your retirement?
It’s a financial tightrope walk. On one side, you want to support your child’s educational aspirations. On the other hand, you don’t want to sabotage the financial security you’ve worked a lifetime to build. The good news? It is possible to do both—if you plan carefully and leverage the right strategies.
In this guide, we’ll explore practical, financially sound ways to pay for college without sacrificing your retirement. You’ll discover the best savings vehicles, ways to minimize your child’s financial aid impact, and tips for making wise decisions on where—and how—your child pursues higher education.
Start Saving for College Early
Time is your greatest asset. The earlier you start saving for college, the more you can benefit from the magic of compound interest.
Let’s say you start saving $200 a month in a tax-advantaged account like a 529 plan when your child is born. If that investment earns an average of 7% annually, you could have around $77,000 saved by the time your child turns 18.
Benefits of Early College Saving:
- Reduces future student loan debt.
- Lessens the burden on your current income or retirement savings.
- Offers more flexibility to invest aggressively when the child is young and shift to conservative options later.
Tip: Set up automatic monthly contributions to a college savings account. Treat it like a bill you must pay, just like your mortgage or utility payments.
Ask Family Members to Pitch In
Grandparents, aunts, uncles, and even godparents often want to contribute to a child’s future—but they may not know how.
Instead of traditional birthday or holiday gifts, ask loved ones to make contributions to a college savings account. A $50 or $100 gift here and there adds up—especially when invested wisely over time.
How to Encourage Family Contributions:
- Share your child’s 529 plan details or use a gifting platform tied to the account.
- Explain how even small contributions can make a big difference over 18 years.
- Frame it as a legacy gift that lives on far beyond toys or clothes.
529s Are Great, But They’re Not the Only Option
A 529 plan is a tax-advantaged account specifically designed for education expenses. Contributions grow tax-free, and withdrawals for qualified expenses (like tuition, books, and room and board) are not taxed. Many states also offer tax deductions or credits for contributions.
However, 529 plans have limitations. They can impact financial aid calculations (albeit minimally when owned by a parent), and funds must be used for education-related expenses—or you face a 10% penalty and taxes on earnings.
Alternative College Savings Options:
1. Roth IRA
While traditionally used for retirement, Roth IRAs can double as a college funding tool. You can withdraw contributions (but not earnings) at any time without penalties or taxes. You can also withdraw up to $10,000 in earnings penalty-free for qualified higher education expenses.
Pros:
- Offers flexibility for retirement if the child doesn’t attend college.
- Does not count as an asset on the FAFSA when owned by the parent (only distributions may count as income).
2. Taxable Brokerage Account
These accounts offer unlimited investment options and no restrictions on withdrawals. While they don’t have tax advantages like a 529 or Roth IRA, they provide ultimate flexibility.
Pros:
- Use funds for any purpose—education, emergencies, or even a car.
- If titled in the parent’s name, impact on financial aid is minimized compared to student-held accounts.
Strategic Tip:
Use a layered savings approach. Start with a 529 for tax benefits, add a Roth IRA for flexibility, and keep a brokerage account for long-term investment growth and discretionary spending.
Title Assets Appropriately: Avoid Putting Assets in Your Kid’s Name
Here’s something that can tank your child’s financial aid package: putting assets in their name.
On the Free Application for Federal Student Aid (FAFSA), student-owned assets are assessed at 20%, while parental assets are assessed at a much lower rate of 5.64%. That means a $10,000 custodial account (UGMA or UTMA) in your child’s name could reduce their aid eligibility by $2,000.
Smart Asset Titling Tips:
- Avoid custodial accounts if financial aid is a concern.
- Keep assets in parents’ or grandparents’ names.
- Consider putting a 529 plan in a grandparent’s name—these accounts are not initially reported on FAFSA and can avoid impacting aid eligibility (though distributions may still count as income, depending on the timing).
Bonus Tip: The FAFSA simplification rules are changing. Starting with the 2024-2025 school year, grandparent-owned 529 distributions will not count as untaxed student income—making this strategy even more powerful.
You Don’t Have to Go to an Ivy League School
It’s easy to let emotions lead the way when your child gets accepted into a prestigious (and expensive) college. But before committing to a top-tier school with a hefty price tag, ask: Is the ROI (Return on Investment) worth it?
Look Beyond the Brand Name:
- Many state universities and private colleges offer competitive academic programs at a fraction of the price.
- Some less selective schools offer generous merit aid to attract high-achieving students.
- Community colleges can significantly reduce the cost of the first two years of education.
Focus on the Financial Aid Package:
Compare colleges not by prestige but by their net price (the actual cost after aid and scholarships). A lesser-known school offering a $25,000 scholarship might be a smarter financial decision than an Ivy League school offering no aid.
Pro Tip: Use each school’s Net Price Calculator to estimate costs based on your financial situation before applying.
Final Thoughts: Balance is Key
Paying for college doesn’t have to mean sacrificing your retirement. In fact, it shouldn’t.
Remember: There are no loans for retirement.
By starting early, exploring multiple savings strategies, titling assets wisely, and making data-driven decisions about college choices, you can help your child pursue higher education—without risking your financial future.
Action Checklist for Parents:
✅ Start a 529 plan early and automate contributions.
✅ Invite family members to contribute to the child’s college fund.
✅ Use Roth IRAs and brokerage accounts for added flexibility.
✅ Avoid putting assets in your child’s name.
✅ Consider a grandparent-owned 529 for strategic FAFSA positioning.
✅ Compare financial aid packages, not school logos.
✅ Protect your retirement—always.
Need Help Crafting a Custom Plan?
Smart planning today means freedom tomorrow—for you and your children.
If you’re unsure how to balance saving for college and retirement, we can help you create a personalized roadmap that aligns with your goals. Click here to schedule a call.