We have all heard it before – save for retirement before you start filling up your children’s college funds. The idea goes against the grain for many parents. Not only do they want to provide money so their kids can go to school, but they also, as parents, tend to put their kids needs before their own. But saving for your own retirement is a great way to protect your kids, too.

Saving for retirement before college isn’t an all-or-nothing plan. Of course, you need to put aside money for college if you hope to have your kids get an education. But the old adage is true that while there are lots of other financial supports and resources to help pay for education, you are on your own when it comes to your retirement years. If you don’t have enough saved up, you risk financial peril and you risk dragging your kids into it, too.

There are also some immediate financial benefits when you save for retirement first. If you invest as much as you possibly can into your retirement funds, you’re still investing in your kids’ futures. You are helping them avoid paying for all your expenses in your old age. Since those costs add up even faster than tuition, you’re saving your offspring a real hardship. Even if they graduate with student loans, those payback schedules are spread out over many years and at low interest rates. That’s not the case if they need to help you pay for senior care costs.

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Socking away money in your retirement can also give you big benefits long before you retire. Saving for your golden years also helps when your kids hit college age, and the family starts applying for financial aid. If you have been diligent about saving for retirement and have amassed a good amount in your accounts, this won’t impact your financial aid benefits. Colleges do not count the money in retirement funds as assets. Those are protected funds and are not considered as funds you can use to help pay for college.

Believe it or not, if you happen to split the amount you are saving, say putting half in your retirement and half into an account for your child, you could reduce your financial aid awards. That’s because the money is the child’s account is an asset and is considered as money that could help pay for college expenses.

Another tip is to make sure any money you set aside for college has a parent or guardian’s name as the primary name on the account. Because this kind of money is considered an asset, colleges will assess a certain percentage of the account to pay for college. But assets in a child’s name are assessed at a much higher rate than assets in a parent’s name so more of that money has to pay for college.

And of course, there are the tax benefits of putting money in your retirement accounts as well. By doing so, you can reduce the amount of taxes you pay, save a significant amount for retirement, and increase your chances at getting financial aid because all that money is being invested into savings vehicles that are not included in financial aid decisions.

See also
Inclusion, Part 1: Your Role in an Inclusive Work Environment

So even if you think saving for retirement before you save for your kids’ college plans sounds like it’s selfish, it’s not. In truth, taking care of your own expenses is smart in the long run, but it can also give you an advantage when it comes to receiving financial aid. There’s no down side to that.

Julia Quinn-Szcesuil
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