It's a balancing act
College Savings Plans
Education funding and retirement planning can – and should – work in balance.
- Saving for your child’s or grandchild’s education doesn’t have to derail your retirement savings plan.
- 529 plans and trust funds are designed to help save for a child’s education.
- Financial aid may be another option.
Retirement vs. education
As a parent or grandparent, you’re probably considering how to balance paying for college while planning for your retirement. Many families use some combination of savings, investments, borrowing, and financial aid (if available).While there are several ways to finance college, Wells Fargo Advisors generally believes that prioritizing retirement savings is appropriate for many investors.
If your employer offers a 401(k) plan, consider putting your savings there first, especially if there is a company match. After that, contribute to your child’s education account.
Save as early as possible
As you might expect, beginning to save earlier for a child’s or grandchild’s education can increase the resources available over time.One popular way to save is the 529 college savings plan. These are tax-advantaged accounts administered by states and institutions. Parents, grandparents, relatives, and friends can contribute.
Other college savings accounts include custodial accounts in the child’s name and Coverdell Education Savings Accounts.
Establish an educational trust fund
Setting up an educational trust fund designed for your child’s education is also an option. When a grandparent or benefactor establishes an education trust, the terms of the trust can be specified. This can include who controls the money, how it will be used, and for whom the trust benefits.It’s a good idea for grandparents to involve parents when it comes to helping with college savings. How they choose to save could impact any potential financial aid the child may receive.
Consider financial aid
Many factors influence financial aid eligibility, so families may benefit from exploring available options before ruling them out.Start thinking about applying for aid during high school. Visit the U.S. Department of Education’s Financial Aid Office for information about eligibility requirements, application deadlines, and types of federal financial loans and aid.
For nonfederal financial aid, visit the College Board’s College Scholarship Service (CSS)/Financial Aid PROFILE® application for information on qualifying.
Factor in income and existing investments
Other investment resources may be used to help fund education expenses while preserving retirement savings, including stocks, bonds, and other investments held outside of retirement accounts.It’s a balancing act
As you plan for the future, it’s helpful to consider the three C’s of college funding: consistency, communication, and compromise.Balancing retirement planning, portfolio management, and education funding require foresight – and a thoughtful, coordinated approach.