As another school year approaches, you may be thinking about the day in which you'll be sending your children off to college.
Can you afford to help them pay for school while still saving for your own retirement?
There are many strategies to explore when saving for your retirement and your child's education. Here are some options to consider:
Contribute to your 401(k). Since many people don't have unlimited funds available to save for retirement and college, it's important to get the most mileage possible from the money invested.
Try to utilize the tax-advantaged retirement accounts available to you. For starters, contribute as much as you can afford to your 401(k) or other employer-sponsored retirement plan.
Fund your IRA. Depending on your income level, your contributions to a traditional IRA may also lower your taxable income, again potentially freeing up resources for college. Plus, your earnings can grow tax deferred. If you qualify for a Roth IRA, your contributions are not tax-deductible, but your earnings grow tax free. Withdrawals are also tax-free, provided you've held your account at least five years and you don't start taking withdrawals until you're at least age 591/2. Open a 529 college savings plan. Contributions to a 529 plan are made with after-tax dollars.
However, when you contribute to a 529 plan, your earnings grow tax free. Withdrawals are also tax-free, provided they are used for qualified higher education expenses. (Withdrawals for expenses other than qualified higher education expenditures may be subject to federal and state taxes plus a 10 percent penalty.)
It may not be easy to put away as much as we'd like for retirement and college. But you do have some attractive savings and investment options. Don't delay, because when saving for any goal, time is a great ally.
Warren Albrecht is a contributing columnist for The Nueces County Record Star. Readers may contact him at (361) 242-1013.