Saving for Retirement and College: How to Juggle Priorities

10:02 pm Estate Planning, Retirement Planning

Bandaid piggy bank 150x150 Saving for Retirement and College: How to Juggle PrioritiesA Wall Street Journal article yesterday pointed up what is a fundamental financial conflict for many parents:  saving for retirement vs. saving for college.  Parents feel pressure to do both, but with prices for college continuing to climb and the necessity to make retirement nest eggs last longer, which takes priority?

Here are some tips for juggling these two important goals:

Retirement saving is the #1 priority.  Financial experts agree that it is more important for parents to save for retirement than college.  Saving is the primary way to fund retirement, while college can be funded in a number of different ways.

College saving begins at birth.  The best way to start saving for college is to start early, at the birth of each child.  Putting aside $300 per month will provide a $120,000 fund once the child reaches college age.

Save on taxes.  To free up more money to sock away for retirement, find a way to minimize taxes on your college savings.  This means investing in a 529 college-savings plan, which compounds free from all taxes and funds can be withdrawn tax-free to pay for qualifying college expenses.

Explore other options.  The interest on U.S. Treasury inflation-indexed bonds (I-bonds) held for five years and then redeemed to pay college costs are free of federal taxes if your income is under $109,250 for a couple, or $72,850 for an individual.  Withdrawals from Roth IRAs to pay for college do not incur the 10% early withdrawal penalty, although they are taxed as ordinary income.

To learn more about minimizing taxes and saving strategies for retirement and college, contact our Orange County law firm.

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