9 Money Moves for Gen Xers Worried About Paying for Kids’ College and Retirement
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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Generation X isn’t called the “sandwich” generation for nothing — many of them are still supporting their children, taking care of their own parents and also planning for their own retirement.
For those who are worried about how to afford their kids’ college educations while saving for retirement, experts offered some money moves you should be making right away.
Lay Out Clear Goals
Jack Wang, a wealth advisor, college financial aid advisor at Innovative Advisory Group and the host of the upcoming Smart College Buyer podcast, recommended you not put this dilemma of college and retirement on an either/or axis.
Instead, he said, first figure out what saving for college means to your family. “What is the target the family is trying to achieve? Spouses often have different views of this,” he said.
Consider Tax Brackets and Financial Aid
Next, Wang said consider whether the family will qualify for financial aid, as well as the family’s income tax and capital gains tax brackets. “These help decide what type of savings vehicles to use and who should be the owner.”
You want to look for savings vehicles that are financial aid and tax friendly, such as Roth IRAs and, he emphasized, properly structured, low internal cost, high cash value permanent life insurance. “Both can grow tax deferred, withdrawals or loans can be tax free, and both are invisible for financial aid.”
Additionally, don’t focus just on which investments earn the most, he said, as other “earnings” in the form of lower taxes or increased nontaxable financial aid can be just as important.
If your family doesn’t qualify for financial aid due to a high tax bracket, Wang suggested, “A family may want to save in the child’s name to take advantage of the child’s low or zero tax rate.”
Utilize 529 Plans
You also want to make sure that when you withdraw money from investments, you’re not penalized, according to Melanie Musson, a finance expert with InsuranceProviders.com. She recommended a 529 College savings fund “to prevent you from needing to borrow from a 401(k) or take from an IRA.”
Don’t Rush To Pay Off Debts
Some families may attempt to pay down their debts more quickly before putting money into college savings or retirement, but Wang said that’s not always the best approach.
“Often, taking those extra payments made on a loan can be redirected towards retirement and/or college savings. Those savings can earn and be accessible when needed,” he said.
Transfer Your Credit Card Balance
If credit card debt is a concern, many 0% balance transfer cards offer up to 21 months with no interest, according to Andrea Woroch, consumer and money saving expert. This allows you to pay down balances faster and with less money out of your own pocket, freeing up more money each month to pay for college.
She recommended comparing balance-transfer cards to find the lowest balance-transfer fee and longest no-interest period.
Hack Your Monthly Bills
There’s probably more money to squeeze out of your bills, Woroch said, if you know how to find it.
“Begin by reviewing your recurring expenses and cancelling subscriptions or negotiating rates with current providers,” she said.
Next, she suggested you rethink your unlimited data plan. “A study found that 72% of unlimited data plan members use no more than 15gb of data each month so you could save by switching to a lower tiered plan or move to an online-only wireless carrier like www.MintMobile.com which has more affordable plans that start at $15 per month.”
She said this can be a huge area of savings for families who are trying to manage a budget.
Hack Your Income
If your income is just over or below the threshold for certain scholarships and federal assistance, see what you can do to keep your income below the threshold, according to Musson.
“For example, you may want to refrain from working overtime to keep your income within the limit.”
Additionally, if you receive any tax refunds, put these toward your child’s education, she said.
Consider Post-Secondary Education Credits
If your child is in high school, look into post-secondary education options, Musson urged.
“Your child may be able to take courses that count for high school and college credits.”
This option could save you and your child money as they take classes while living at home, shortening the number of semesters they have to pay for college admission and courses or housing.
Encourage Children To Work and Save
Lastly, this is a great time to encourage children to work, when possible, and save as much money as they can, Wang said.
Additionally, kids with earned income are allowed to contribute to their own Roth IRA, he said. Though parents can also use their own money to contribute to the kid’s Roth IRA if the child didn’t save themselves, as long as they don’t exceed the contribution limits.
They’ll also want to work on applying for scholarships as soon as possible.
“If the student is in high school, even as a freshman, they should be applying for college scholarships,” Wang insisted. “The per hour return can be higher than most jobs a student would get.”
A combination of these strategies can make it possible for Gen Xers to have a comfortable retirement while their kids get a good college education.
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