Lifepoint Financial Design – LifePoint Financial Services – Mike Metzger Financial Planning

This blog profiles Linda and Peter, a hypothetical couple worried about their ability to save for both education and retirement costs.

Linda and Peter are worried about their financial future. “We want our one-year-old son, Raymond, to go to college, but we’re concerned that in 17 years, the cost might be more than we can afford,” says Peter. “We also need to save for our retirement,” adds Linda. “Can we reach both of these goals?”1

Linda and Peter aren’t alone. Millions of Americans are finding it a struggle to balance the high cost of higher education while saving for their own retirement. If you’re one of them or would like to help someone faced with this situation, put your worries aside. Fortunately, there are steps you can take to help overcome this double-sided planning hurdle.

For example, because Linda and Peter won’t need their money for 17 years, they decided to begin investing now and often. Starting a regular investment program long before needing the money can potentially work in their favor. That’s because of compounding — which is what happens when previous earnings from an investment remain invested and, in turn, can earn more money.

They also decided to make the most of their contributions by investing in vehicles that would generate important tax benefits. They chose to funnel $100 each month into a 529 savings plan, which would allow their contributions to potentially benefit from tax-deferred growth and tax-free withdrawals for qualified education expenses. Meanwhile, they also set aside $200 a month into an IRA. When they receive raises, Linda and Peter will increase their contributions to both accounts.2

Getting a Late Start

Sandy and Paul have a different issue. “We don’t want to be a financial burden on our kids when we’re older, so we’ve always opted to max out our 401(k)s and IRAs, which limited the amount left to contribute to a college fund,” says Sandy. “Now our twins are 16, and we’ve only managed to save $8,000 for their college expenses.”

“Fortunately, my parents have helped out by investing $22,000 in UGMA custodial accounts,” says Paul. “We should be eligible for loans and maybe the girls will receive scholarships. It won’t be a cake walk, but at least we may be able to get them through college without sacrificing our retirement.”

Planning Is Key

If you’re feeling overwhelmed while investing for long-term financial goals, why not create a workable financial plan and begin to invest regularly? Over time, even small sums of money invested could potentially add up. And by all means, don’t forgo investing for your own Golden Years. After all, there are no retirement scholarships. Investing in an IRA could have many benefits. For example, assets held in an IRA will not affect your eligibility for financial aid, and, if need be, you might  be able to make penalty-free withdrawals for qualified higher education expenses. With a traditional IRA, you may benefit from a tax deduction now while your earnings grow tax deferred. With a Roth IRA, you make contributions with after-tax dollars, but qualified withdrawals will, in general, be tax free.3,4

Don’t Go It Alone

These are just some ideas for stashing away money for both college and retirement, but don’t make important financial decisions in a vacuum. Consider the role that your financial planner can play in helping you plan your financial future. He or she has the experience and the resources to help you evaluate your individual situation and may be able to help you maintain your financial equilibrium.

If you would like advice pertaining to your specific situation, don’t hesitate to reach out.


The examples shown are for illustrative purposes only do not represent any specific investment. Your results will vary.

Investing in 529 plans involves risk, including loss of principal. Section 529 plans are not guaranteed by any state or federal agency. By investing in a 529 plan outside of the state in which you pay taxes, you may lose the tax benefits offered by that state’s plan. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary.

Nonqualified withdrawals may be subject to a 20% withholding and a 10% additional federal tax in addition to ordinary income tax.

Restrictions, penalties, and taxes may apply. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

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