Many parents are now being faced with a tough financial decision: Do I save for my child’s college education or do I save for retirement? In a world where money is tight for many, financial decisions can be among the toughest we have to make.
According to an article by Insurance News Net, a poll of 401 families in Oklahoma revealed that 43% had not yet started saving for their child’s or grandchild’s education, even though 86% said that it was very important for their child or grandchild to go to college.
What most of those households did not know is that the Oklahoma 529 College Savings Plan includes tax benefits, even though 71% of the households polled said that tax advantages were very important in their choice of a savings plan. Oklahoma State Treasurer Ken Miller explains the Oklahoma 529 plan’s advantage.
“‘Increasing the number of Oklahomans with a higher education is important for all of us who call this great state our home,’ said Miller. ‘One of the benefits of the Oklahoma 529 College Savings Plan is that it offers tax advantages this year and every year. The Oklahoma 529 College Savings Plan is the only state-sponsored plan and offers an Oklahoma tax deduction of up to $20,000 per household, per year. In addition, any earnings used to pay for qualified college expenses are free from Oklahoma and federal taxes.’”
Maine is also making college saving plans for its children. In 2009, Maine had a program through the Harold Alfond College Challenge in which parents could open a 529 savings plan to receive a free $500 grant from the state that immediately went into their child’s college fund, according to a report released by Washington University in St. Louis.
Suprisingly, only 40% of parents participated in the plan. The state has since made 529 college savings plans universal and automatic for every newborn in the state. Since 2009, Maine has invested $11.5 million into the newborns’ 529 college savings plans.
But one big question remains: How will parents fund and save for their child’s education if they themselves are trying to save for retirement? Ann Carrn’s article sheds some light on the matter.
Carrie Schwab-Pomerantz, a senior vice president at Charles Schwab and Company, states that parents must look after themselves first. It will cost your children more to take care of you in your old age if they have to miss work or hire a caregiver to take care of you than it would if you had saved that money yourself.
A year at an in-state university can cost your children $23,000, whereas your children having to hire someone to take care of you could cost them up to $300,000 in a year. Saving money for retirement would help to buffer the latter number. If money can be spared for both saving funds, that is wonderful. However, the parents’ retirement fund must come first, experts warn.