Skin in the Game: Rethinking College Funding
by Amanda Vaught
You have spent years building a successful career in the city. You work incredibly hard to provide a great life for your family, balancing demanding professional hours with the daily joys and chaos of raising young children. As your kids grow, a massive financial milestone looms on the horizon, and it brings a heavy cloud of anxiety with it.
That milestone is paying for college.
The Guilt of the 100 Percent Rule
Many successful parents feel an overwhelming internal pressure to fund 100 percent of their children's college education. You want to give your kids every possible advantage and ensure they graduate debt-free. But at the same time, you want them to have some "skin in the game." You want them to understand the value of a dollar and the true cost of an education so they take their studies seriously.
Struggling to balance these competing desires can lead to a “frozen state” from indecision.. When you feel unsure about how to implement your personal values regarding paying for your child’s education, it leads to the path of least resistance: a “default” of not saving. This internal conflict results in fewer options as your children grow. For example, assume that when your children are older, you decide that you’d like to help pay for their college. At this point, you may be forced to stay in a job you hate, or skimp on your own retirement savings in a way that’s detrimental to your long-term financial well-being. Getting clear on your values and goals early on allows for future flexibility, reduces guilt and stress around finances, and generally improves financial outcomes for you and your children.
Protecting Your Own Foundation First
I understand the instinct to sacrifice everything for your family, but I also know the terror of losing your financial safety net. During the 2009 financial crisis, I lost my job as a patent attorney at a large New York City law firm. That sudden upheaval shook my sense of identity and taught me a painful lesson about security. It proved that a high income does not protect you from the unexpected. You must have a solid foundation in place.
I became a financial advisor because I wanted to help parents build a fortress around their families. When it comes to college planning, my advice is always the same. You can take out loans to pay for college, but you cannot borrow money to fund your retirement. If you sacrifice your own financial security to pay for tuition, you risk becoming a financial burden to your children later in life. We help families find a balanced approach that provides meaningful support for their kids while keeping their own retirement fully on track.
The Tax Benefits of Saving for Education
While many people first notice the state tax deduction or credit that may be available for 529 plan contributions, that benefit is often only part of the story. The greater long-term advantage of a 529 plan is the opportunity for earnings to grow free from federal income tax, and in many cases state tax as well, as long as withdrawals are used for qualified education expenses. Over time, that tax-free compounding can make a meaningful difference, especially for families who begin saving early and allow investments many years to grow.
Watch: Real Client Stories: The Power of 529 College Savings Accounts
In this episode of Connecting the Dollars, Emily and I highlight the real world benefits of 529 plans and dispel some common myths. We discuss how these accounts are more flexible than you think, how they can sometimes be rolled into a Roth IRA if your child's path changes, and why even small, automated monthly contributions today can reduce your emotional and financial stress tomorrow.
You Do Not Have to Carry the Guilt
Balancing college savings with your own retirement goals is a delicate and emotional process. You do not have to carry the guilt or figure out the math entirely by yourself. If you want to see exactly how a realistic funding strategy works for your family, we are happy to talk.
