The Smart Way Parents Can Save for College and Retirement Together

It's college savings month, and parents often feel the tug-of-war between saving for their child’s education and protecting their own retirement.

With tuition costs rising, college savings calculators suggest parents should set aside hundreds of dollars each month. At the same time, retirement plans require steady contributions over decades. The result: a sense of financial strain that leaves many families wondering how to divide limited resources – save for college or save for retirement.

However, putting college savings ahead of retirement can backfire. There are many ways to pay for college – even student loans and scholarships, but you can't get a loan for retirement.

To stay on track, families are encouraged to save for their own future before funding a 529 plan. This approach ensures financial stability later in life while still giving children meaningful support for college.

How 529 Plans Work

A 529 plan is a tax-advantaged account designed to cover qualified education expenses. Parents, grandparents, or other family members can contribute, and investment growth is tax-free if withdrawals are used for education. Most states offer their own plans, and some provide tax deductions or credits for 529 plan contributions.

There are two main types: prepaid tuition plans, available in a handful of states, and investment-based accounts, which allow families to grow funds over time in mutual funds or index funds. For most households, the investment-based version provides the flexibility needed to save at their own pace.

Families who open accounts when their children are young can benefit from years of compounding. But even late starters can use the tax advantages to make college costs more manageable. The key is deciding how much to contribute to a 529 plan without stretching household finances too thin.

Creating A Realistic College Savings Target

One of the challenges of saving with a 529 plan is knowing how much to set aside. The average in-state tuition at a public four-year college was $11,610 in 2024–25, while private schools averaged $43,350, according to the our research on the average cost of college.

Plugging these figures into a college savings calculator can produce intimidating numbers: often $500 or more per month. But parents do not need to aim to save the full cost of college. You can choose to fund a percentage of future costs, such as 50% of an in-state degree, and expect students to use scholarships, grants, part-time work, or student loans for the rest.

Using assumptions of 6% annual investment returns and 4% tuition inflation, saving around $96 per month can cover half of a child’s in-state public college tuition. On the other hand, covering the full cost of a private university would require far higher monthly contributions, around $630. By setting a clear target, parents can plan realistically without sacrificing their own retirement contributions.

Here's a simple guide to how much you should have in a 529 plan by age of your child.

The Order Of Operations

We strongly believe in the “Y.E.S.” framework as an order of operations to save for college:

1. You First: Build an emergency fund and maintain retirement contributions, such as funding a 401(k) or IRA. Parents cannot borrow for retirement, but children have multiple avenues to fund their education.

2. Education Savings Accounts: Once retirement contributions are on track, allocate funds to a 529 plan or similar education account. Even modest contributions can make a significant difference over time thanks to tax-free growth.

3. Other Savings: Families may also want a separate savings account for non-educational expenses, such as a child’s first apartment or a wedding.

This approach allows families to make progress on multiple goals without putting their long-term financial security at risk.

Retirement Comes First

The emotional pull of helping a child through college is strong, but parents must balance it with the reality of their own financial needs. Retirees without sufficient savings may end up depending on their children later in life, undermining the very support they intended to provide.

We see it too often where a parent thinks they're being helpful with their children at 18-22, but only end up becoming a financial burden to them at 30-35. If you don't know if you have saved enough, here's a guide to how much you should have saved for retirement by age.

By prioritizing retirement first, then allocating what’s available to a 529 plan, parents can model strong financial habits while still giving their children a head start. A balanced approach helps ensure that both generations move forward without excessive debt or insecurity.

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