How I’d Pay for College Without Torching My Retirement

Your retirement needs come first. Seriously.

Saving for your own retirement ahead of college savings for your children isn’t selfish; it’s the best option to protect both parties. If you run out of money during your 70s, you’ll become an economic burden to the very children you were trying to protect. Tony Durkan, who runs 529 relationship management at Fidelity, puts the principle plainly:

“Fidelity believes that retirement saving should be a priority, because while you can’t borrow money to pay for retirement, you can for college.”

— Tony Durkan, Vice President, Head of 529 Relationship Management at Fidelity Investments (source)

You should still fund your 401(k) at least to the extent of earning the full company match, which is essentially free money that you’d otherwise be leaving on the table. For example, if your company provides a 50% match up to 6% of your gross wages and you earn $90,000, then your contribution of $5,400 results in about $2,700 in free money each year. College savings comes next, not first.

What a 529 Plan Does

A 529 is an investment vehicle sponsored by each state for education. Contributions made to the plan are made using after-tax dollars, grow without taxation at either the state or federal level, and distributions are tax-free provided they’re used exclusively for qualified expenses such as tuition, fees, books, and room and board.

Many states provide a tax deduction or credit against state taxes for contributions made to a 529 plan. So, it’s wise to research the specific provisions offered by your home state before investing in a plan.

Contributions made to a 529 plan are treated as gifts under federal law for tax purposes. As of the time of writing in January 2026, the annual gift tax exclusion for 2026 was $19,000 per donor per beneficiary, or $38,000 for a married couple. Virtually any reasonable contribution can be made within these limits.

There are exceptions to this limit. For instance, if a grandparent wishes to make a large one-time gift to help fund college expenses, they may prepay up to $95,000 per individual (or $190,000 for married couples) in a single calendar year by filing a gift tax return. These amounts must be spread evenly over a period of five years in accordance with IRS regulations.

There’s no requirement to fully fund a 529 plan. In fact, contributing relatively small amounts consistently, for example $500 a month, for many years can add up significantly as time passes and create considerable savings for potential higher education expenses. The key is consistent monthly contributions that don’t interfere with the required funding levels of other important accounts, such as a 401(k), or your emergency fund.

Complete the FAFSA regardless of whether you believe you earn too much

The Free Application for Federal Student Aid (FAFSA) is usually considered the gateway to most types of student aid, including need-based grants, work-study programs, and federal student loans. The FAFSA for the 2026-27 academic year begins accepting applications October 1, 2026, and uses data from your 2024 federal income tax returns. Applying early is significant because some forms of aid are awarded based on availability, first-come, first-served, until the funds available to award are depleted.

Upon completion of the FAFSA, a numerical value known as the Student Aid Index is calculated. Schools use this number to estimate how much money your family can reasonably contribute toward the cost of attending their institution, and to construct an aid package that includes federal loans (both subsidized and unsubsidized), institutional grants, and scholarships. While many students assume they won’t be eligible for need-based federal aid due to high incomes, this isn’t always true. Certain types of federal student aid, such as unsubsidized federal loans and some forms of merit-based aid, don’t take family income into consideration. And the largest source of federally funded need-based student aid, the Pell Grant program, awards up to $7,395 per student for the 2026-27 academic year.

The order is simple: fund your employer-matched retirement accounts to a sufficient level, then consider creating a 529 plan for additional college savings.

The one rule that never bends

There’s a simple premise to the decisions made here: when it comes to college, there’s no shortage of credit; for retirement, there’s none. A child has a few ways to make ends meet that an adult doesn’t. She can put in some part-time hours, apply for a scholarship, or even pick a more modest institution. If she needs to go into debt for school, she has a lifetime of work to pay it back. The same can’t be said for the years after you’re done with a career. To put off your own retirement to put her through school is to put at risk the very thing you’re after, and in the end, you may find you have made yourself a liability to the one you were meant to be supporting.

But that’s no cause to put college savings on the back burner. What it means is you have to be deliberate about your priorities. Make sure you’re putting enough into retirement to take full advantage of an employer match, and with a solid emergency fund in place, put the rest toward the kids’ education. There’s no virtue in being so giving that you put your own later years at risk; they won’t be looking back with any gratitude for that kind of self-sacrifice.

Ways to save for college beyond the 529

While the 529 is the one that tends to be in the spotlight, it’s by no means the only option. There’s the Coverdell Education Savings Account, for instance. You can contribute as much as $2,000 a year for each child and, with some income restrictions, put it toward several K-12 expenses in a way a 529 won’t allow. Then you have the simple custodial account. It’s a more open-ended choice, but it does come with trade-offs: it has a steeper impact on financial aid and, once the child comes of age, they’re in charge.

For a more low-key approach, consider the Roth IRA. Since there’s no penalty for taking out your own contributions, it can serve two masters. A number of parents put money in with the idea that they can tap it for tuition down the road, or let it ride and build up for their own retirement if the college tab isn’t as onerous as it seems. You won’t find this in the rulebook, but it’s a way to have some flexibility while the child is still a few years off from the application process.

Bring the sticker price down, not just save for it

Put simply, putting money aside is just one side of the equation. The rest is in not overpaying for what you get. Take an in-state public university: for a credential that holds as much weight with hiring managers, the price tag is a small part of what you’d put out for a private institution. There’s also the option of starting at a community college and then making the move to a four-year program; it’s a way to see a marked reduction in costs and still walk away with the same diploma. For those with the drive, credit-by-exam is another avenue to put existing knowledge to work and earn some course credits for very little.

Then there’s the matter of what an employer will put up. It isn’t uncommon for a company to have tuition aid in place for staff and, in some cases, their relatives. More and more are also chipping in on student loan repayment as part of the package. In the end, a degree is no less valuable for being half the cost; it’s the money left in your pocket from not paying full fare that can be put to work in your retirement.

Chase the aid you assume you will not get

It’s a common enough thing for families to put off the paperwork, convinced they’re well above the income line. In truth, that kind of thinking has a way of leaving money on the table. There’s federal assistance out there with no income test, and then you have merit-based scholarships that are all about what a student has put in, not what they need. Filing the forms is the only means of knowing where one stands. Put in the time to get the FAFSA done, and when your child is in his or her final year, make it a point to be on top of the scholarship search.

Take the Pell Grant, for instance. As the most substantial of the federal’s need-based grants, it can put as much as $7,395 in a student’s pocket for 2026-27 with no strings attached. But these funds are doled out on a timetable and, in some cases, on a first-come, first-served basis. There’s no point in putting off the paperwork; an early application is what separates a complete grant from one that has already been given away.

Photo by Joshua Hoehne on Unsplash