Personal Finance

How to Save for Your Kid's College Without Destorying Your Own Retirement Dreams

Joey Frenette

Published: February 6, 2025 9:11 am

Millennial parents should start thinking about saving up for their own child’s education expenses (even if it’s still more than a decade or two away) to ensure they aren’t starting their professional lives off saddled with substantial student loan debt like many folks within the generational cohort are today. Indeed, it can be a real pain to start off in the read by four- or even five-figures.

As interest on student loans accumulates, the pressure will be on, making it difficult to get back to breakeven financially so that one can focus on saving for their future or major (though very expensive) life milestones that have been delayed by today’s younger generations. Indeed, marriage, children, buying a home, and other adulthood achievements have been pushed back (or even given up on), thanks in large part to outstanding debts. Student loans and credit card debts can be a toxic one-two punch to the financial gut of just about anyone.

The value of saving for a child’s education well ahead of time

It’s not only a bad financial spot to be in while one is young and still years or decades away from their prime earnings years, but it can also have a mental health impact. So, if you’re like many who started off with student loan debt and don’t want the same for the next generation, it’s time to get serious about saving for the child’s educational pursuits, even if they’re not old enough to speak yet! It’s never too early to get started, at least in my humble opinion.

There are many ways to go about saving up for a child’s educational expenses. Whether your child wants to be a Ph.D, a doctor, a bachelor’s degree holder, or just wants a diploma, parents should be prepared for a wide range of potential outcomes. Additionally, a child may have no desire to pursue post-educational in which case you should weigh the consequences of withdrawing cash from an education savings plan.

Also, you’d better be prepared to keep saving for your own retirement as you stash away a bit of cash for your child’s future. Indeed, it can be a juggling act to save a bit for retirement and a bit for the child’s education while leaving the rest for present-day needs, especially if inflation creeps higher again on the back of tariffs. 

529, custodial accounts, and ESAs. A trio of options for parents to weigh.

For those looking to save up for their child’s educational pursuits, there are a number of options, including the popular 529 plans, the less-popular custodial account, and the somewhat limiting education savings accounts (ESAs).

For those keen on empowering their child to take control of their financial futures, a custodial account can make sense, as the funds will be under their name.

Additionally, it’s a flexible account with no general purpose, making it a good option for parents worried their child won’t end up going to college or university in the distant future. Of course, there’s a higher degree of trust involved with custodial accounts. 

If you’re convinced they’ll be headed to college in a few years, the 529 and ESA may be suitable options. The 529 is more popular because there’s a greater degree of flexibility with the former, with no contribution limits (it’s set at $2,000 per child annually for the ESA) and the ability to change beneficiaries without too much hassle. In any case, meet up with a financial advisor and tax professional, and they can help you pick the optimal option, given your personal needs. 

Of course, you can always just play things by ear and gift them the money once their tuition comes due. That’d be the most flexible option, though you would leave years worth of tax-free growth on the table.

Don’t neglect your retirement fund.

In any case, do ensure you’re not losing track of your retirement savings and investing plan. At the end of the day, children can pay their way through school or take on student loans. It’s not ideal, but perhaps a less horrid scenario than you having insufficient funds for retirement.

Furthermore, if the budget gets tight in any given month, do not feel shame about contributing to the retirement account over the educational one—nobody else is saving for your retirement but you. And so, dear reader, please do not feel the need to deprioritize investing in yourself, even if it’s your dream to set your child up nicely for their educational endeavors. With the right balance and careful financial planning, you can achieve both.

As always, find the right balance between saving and investing for your future self and your child’s future. If you’re unsure how to find balance, especially if you have several children, a financial advisor can be a significant help!