As a parent of a young child, I can’t help but think about his future as much as ours. Sure, I have to take care of his needs right now — like making sure he’s well-fed and is up to date on his immunizations — but I also want to ensure that he doesn’t get himself in a financial pickle as an adult.
That means I want to help him with some of his college funds — but what about my needs too?
If you’re trying to figure out the same thing — whether to put money aside for retirement or your children’s college education — you’re not alone. The thing is, it doesn’t need to be either one or the other. However, there needs to be a few considerations when choosing how much to set aside.
Take care of yourself first
One of the best ways you can ensure that your children have the best possible future is to take care of your own financial needs first. Think about it: if you find yourself strapped for cash later on in life, how much good are you really doing if your children have to take care of you financially?
Yes, this means making sure you have money set aside so that you can live comfortably during retirement. If you had to choose between the two right now, you’re probably better off saving your cash in a retirement fund — look to your employer-sponsored plan (if you have one) or accounts like a traditional or Roth IRA.
As for how much to set aside? It’s really up to you and what your budget allows. For me, I aim to max out my retirement accounts before I think about other savings goals, like my child’s college fund.
Ask for monetary gifts
I’m going to assume your children are well-loved and there are plenty of people who want them to do well. So why not ask them to put money toward their college?
It might sound tacky, but it’s not — I bet most folks in your life would rather gift something that’ll be both useful and appreciated for years to come. Plus, if you’re sick of people giving your child toys and cluttering your home (as if you have time to clean 24/7!), you can suggest a monetary gift toward their college fund instead.
Friends and family can simply write you a check to put it toward your child’s 529 account (this is a tax-advantaged account designed to help you save for your child’s qualified educational expenses), while companies like Gift of College allows gifters to purchase gift cards that will go toward their account.
Before going this route, make sure to check with a reputable financial and tax professional to see how it can affect your finances and what you need to do to open this type of tax-advantaged account.
Encourage your kids to save
Involving your children in saving for their own college funds offers so many teachable moments and can help them take more responsibility toward their future. You can encourage them by talking about what debt is and what it means to be able to pay for their education in cash.
To sweeten the deal, you can offer to contribute a little by matching their savings (it can be up to a certain percentage). That way, you’re still putting the majority of your efforts towards your retirement funds, but are still helping with their future.
Remember: You can do both
The question of whether you put money towards your retirement or your children’s college funds can be complicated and emotional. On one hand, you need to take care of your financial needs. On the other, you want to help your child get off on the right foot.
Keep in mind there are ways to do both — by asking for money towards a 529 fund in lieu of gifts or contributing a little bit yourself. Either way, your child will appreciate that you’re helping in any way you can.
–By Sarah Li Cain