Juggling College Funds and Retirement Plans

Is it possible?

A friend recently asked me, “Is it possible to pay for 100% of my girls’ college education and retire when I want to?” The correct answer is always, “It depends.” Are you willing to cut back on certain expenses? Not take vacations? Take on a 2nd job? The answer to these questions for myself and many others is a resounding (and emphatic)…NO! I absolutely do not want to take on a 2nd job or go without vacations.  After all, this is a period when I would like to take more vacations when my wife and young children. The answer to my friend’s question, was also “no.” He (like us) had a finite number of resources and would have to choose between two options: fully funding education or fully funding retirement. The financial planner within me feels obligated to remind you that the one thing in life you cannot finance is retirement. Insert an analogy about putting on your own oxygen mask before helping others.

How Am I Approaching This for My Family

My wife and I created a budget for how much we wanted to save & invest in a 529 College Savings Plan. 

A 529 College Savings Plan allows you to make contributions that grow tax-deferred and if used for qualified educational expenses, the distributions come out tax-free.

For us, we decided on $350 per month per child.

80% into a U.S. Total Stock Market Index

20% into an International Stock Market Index

For our family, this number worked nicely for our budget towards college education and still let us fund other priorities.

My Thought Process On College Education

Part 1:  If I save & invest $350 per month for 15 years and earn a 7.8% rate of return, the funds will grow to approximately $119,000.

Part 2:  Any additional funds we save & invest will go to a family brokerage account.  The family brokerage account will be accessed for school, weddings, home purchases, etc…

Fun Fact: My parents have a “family brokerage account” and my parents give us money for back-to-school clothes for our children and pay for their schoolbooks. Also, my mom declares the gifts are from the Donald & Doris Robbins Trust Fund (named after her parents, but the trust doesn’t actually exist), to continue the wonderful tradition that my grandparents started.  This is an awesome tradition that I will continue.  Legacy goes beyond money.

Fun Fact 2:  My Saint of a wife, Jessi, is currently homeschooling our three children ages 5, 7, & 9.  We will continue to evaluate this annually.

If my children go to a four-year in-state school (University of South Carolina), we will be woefully underfunded if they pay the full sticker price.

Let’s say my children want to go to college– they will have money to start.

If they are doing great in college and have spent the entire $119,000, I can consider funding any remaining tuition payments from my cash flow or the family brokerage account.

Now, if they don’t use all the money for college– up to $35,000 in a 529 Plan can be contributed to a Roth IRA in my child’s name.  Note:  The 529 Plan must be open for 15 years.

However, If they want to use the money to start a business (pay the 10% penalty for a non-qualified distribution of earnings), that is awesome too.

Conclusion On College Education

There is no perfect way to plan for your children’s education.  It is quite possible the future of education will look drastically different in ten to fifteen years.  The important thing is to make a plan for your family that fits into your budget and doesn’t derail other important family dreams, goals, and aspirations.

If you or someone close to you could use the help of a financial planner to take the stress and burden of financial planning off your plate, we’re here and thrilled to work with you.


Want more information about other important financial topics? Visit our blog here!

About 529 College Savings Plans

  • Contributions grow tax-deferred.
  • Some contributions can be invested in mutual fund accounts ranging from money market funds, bond funds, U.S. stock funds, international stock funds, etc…
  • It depends upon your state, contributions could be tax-advantaged.
  • Qualified distributions come out tax-free.
  • For example, qualified expenses include tuition and fees (limited to $10,000 per year for K-12), books and supplies (college only), computers, software, and internet access (college only), room and board (college only – must be enrolled at least half-time), special needs equipment (college only), and student loans (lifetime limit of $10,000).
  • What are common non-qualified expenses: transportation and travel costs, health insurance, college application and testing fees, and extracurricular activity fees. 
  • Account balances can be transferred from one beneficiary to another.
  • The custodian (not the child) controls the money.
  • Non-qualified expenses are subject to a 10% penalty on the earnings upon distribution.
  • Up to $35,000 can be transferred to fund a beneficiary IRA if you have additional funds.  The 529 Plan must be open for 15 years.
  • If your child receives a scholarship, you can take a distribution up to the scholarship amount in the year in which the scholarship occurs without penalty.
Disclosure:  Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax-free. Tax treatment at the state level may vary. However, please consult with your tax advisor before investing.
Subscribe to Dollars and Diagrams

Did you enjoy this?

Subscribe to Dollars & Diagrams for more!

More Guidance from Know My Plan

Your custom one-page financial plan

It all starts with a conversation

And walk away with a FREE financial plan!