How to Save for College Without Sacrificing Your Retirement

Bill Nelson is a planning excellence lead consultant at Northwestern Mutual.

You want to help your kids with college, but you’re also carrying your own retirement savings goals—and possibly your own student loan debt. Figuring out how to divide your money among these competing priorities can feel overwhelming, especially when there’s no single “right” dollar amount or percentage that works for everyone.

And with the cost of raising a child continuing to climb, having a clear strategy matters more than ever.

The right place to put your money depends on your full financial picture. What you need is a framework for thinking strategically about how to split your available dollars among college savings, debt repayment, and retirement investing—so you can make confident trade-offs instead of guilty guesses. Here’s how to approach it.

Start with your full financial picture

A budgeting framework can be a reasonable starting point. A common one is 50/30/20, with 50 percent toward needs like housing and childcare; 30 percent toward things you want, like dining out, travel, and hobbies; and 20 percent toward savings and investments.

For many families, a more realistic split is 60/20/20, which means 60 percent for needs, 20 percent for savings and investments, and the last 20 percent for those “wants,” or discretionary spending. If your monthly take-home pay is $4,000, that would mean $2,400 going to fixed expenses, $800 to savings, and $800 to discretionary spending.

Either strategy could work. The goal of having a monthly budget for your family is to understand where your money goes—there’s nothing like seeing the actual numbers. When you build a monthly budget for your family, it becomes the foundation for every decision that follows.

Put your own retirement (and maybe your own student loans) first

When you think about how to divide your savings bucket, keep in mind that your retirement should come before your child’s college fund. The reason is simple: Loans, scholarships, and grants can cover tuition, but no one will lend you money to live on in retirement.

Retirement accounts need decades of compounding to grow, and every year you delay contributing creates a gap that becomes harder to close later. When you save for retirement consistently, even modest contributions benefit from years of tax-advantaged growth. The earlier you start saving for retirement, the more time compounding has to work in your favor.

And if you’ve got student loans with high interest rates, paying them down can offer a guaranteed return that’s hard to beat. Once your high-interest debt is under control, direct what’s available toward retirement first and then to kids’ college savings.

Many parents feel they should sacrifice their own future for their kids—but underinvesting in yourself can create a bigger burden down the road. If you arrive at retirement without enough saved, you may end up relying on your children for support, which is the opposite of what you intended.

Prioritizing retirement or your own debt paydown doesn’t mean ignoring college savings entirely. It means establishing retirement as the non-negotiable baseline and fitting college savings around it. With tuition rising, the pressure is real—but do what you can to help out without totally sacrificing your own future. It may help to keep in mind that:

• Even relatively small, consistent contributions can grow meaningfully over time.
• You don’t necessarily need to cover the full cost of tuition, room, and board for your children—co-signing a loan can be another way to help them afford college.

Fit savings tools into your financial plan

When you’re able to put money aside, talk with your financial advisor about starting with the tools described below. Use them alongside your retirement baseline and debt paydown—not as replacements for either—so each dollar works harder within your broader financial plan and strategy.

Here are some highlights about ways to save for your kid’s education that provide flexibility if your child doesn’t need all the money you’ve saved for them (or if your child doesn’t attend college).

529 plans

A 529 plan is a tax-advantaged college savings vehicle that offers tax-free growth and withdrawals when funds are used for qualified education expenses, such as tuition, books, and room and board. According to the College Savings Foundation’s 20th Annual State of Higher Education Savings survey, 50 percent of parents are now saving in 529 plans for their children—evidence that these accounts have become a mainstream planning tool for families.

One concern that holds some parents back is the fear of money going to waste if the child doesn’t go to college or gets a full scholarship. The SECURE 2.0 Act addressed this by allowing unused money in 529 plans to roll over to a Roth individual retirement account (IRA) for the beneficiary, up to a $35,000 lifetime limit. This 529 to Roth IRA rollover provision reduces the “what if” anxiety and adds flexibility to your savings strategy.

Coverdell ESAs for some families

A Coverdell education savings account (ESA) may be another option. Like a 529 plan, a Coverdell ESA offers tax benefits as you save for college, but a Coverdell has more restrictions.

1. Income limitations: The maximum contribution is $2,000 per year, but it could be less or even zero depending on tax filing status and income. The income number used is the modified adjusted gross income, known in the tax world as MAGI. Some people’s high income means they can contribute only a reduced amount or nothing at all.
2. Yearly maximum: The total contribution to all accounts on behalf of a beneficiary in any year can’t exceed $2,000.

Keep in mind that Coverdell contributions must be made in cash, and they’re not tax-deductible. But Coverdell ESAs do have some advantages, including generally lower fees and broader investment options than 529 plans. They can also be used for certain education expenses that aren’t covered by 529 plans.

But Coverdell accounts are less flexible in some ways. A Coverdell account must be emptied (or “liquidated”) within 30 days after the beneficiary turns 30 (unless special needs are involved). So, if your child doesn’t attend college or gets a full scholarship, you could simply withdraw contributions and earnings from the account. You won’t be penalized on the contributions, but you’ll pay a 10 percent penalty plus income taxes on the money earned, known as “appreciation.”

Roth IRAs

You may have heard of a Roth retirement account funded with after-tax dollars—but some families use these funds to pay for non-retirement goals like education. The earnings accumulate tax-free, and you won’t have to pay penalties if you use them for qualified education expenses. Keep in mind that:

1. Only earned income can be put into a Roth IRA. That means you can’t use profits from other investments, such as income from rental properties or assets you’ve sold.
2. Contributions are currently capped at $7,500 ($8,000 if you’re age 50 or over) and are subject to an adjusted gross income phase-out, depending on how much income you earn.

To use this strategy, you set up an account with yourself as the owner. As the money builds up, you can use it to help pay for multiple students’ expenses, not only one. You can apply any money that you don’t need for educational expenses to your own retirement. Compared with a 529 plan, you’re likely to have more investment options.

Trump accounts

Trump accounts—also called 530A accounts—are tax-deferred savings accounts for children that work in many ways like a traditional IRA. The key differences are:

• There’s no earned income requirement for contributions,
• Multiple people can contribute up to a combined $5,000 per year, and
• The money is locked until January 1 of the year the child turns 18. At that point, the account essentially converts to a traditional IRA under the child’s control.

These accounts aren’t designed for college savings but can be used without penalty for higher education. And kids who don’t need the money for college can use it without penalty during their own retirement.

These accounts became available in July 2026, so you may not be very familiar with them. Your Northwestern Mutual financial advisor can help you understand whether they fit your situation.

Make the most of tax credits

Beyond dedicated savings accounts, several tax provisions can ease the college-funding burden. The American Opportunity Tax Credit offers up to $2,500 per eligible student for qualified expenses during the first four years of higher education. The Lifetime Learning Credit can provide up to $2,000 per tax return for qualified tuition and related expenses, including undergraduate, graduate, or professional degree courses. Some families may qualify for both credits in the same year, though you can’t claim each for the same student.

Think of these tax credits as tools to stack alongside your savings, not substitutes for a clear savings strategy. Tax credit eligibility and rules vary by income and situation. Verify the details with a tax professional before filing.

Avoid shortcut attempts

Northwestern Mutual found that a sizable share of Americans—especially younger adults—are investing in or considering high-risk/speculative assets, such as cryptocurrencies, sports betting, and prediction markets. Our 2026 Planning & Progress Study found that among people who are currently using or considering these assets, 73 percent say they’re doing so because they feel financially behind and believe these assets will help them reach their financial goals more effectively than traditional methods.

It can be tempting to turn to these riskier assets to try to get caught up, especially when you feel behind. But these methods are too risky for money that you need to be able to count on. They can be fun to play with and may sometimes have a role in your financial picture—but only if you can afford to lose the entire investment.

Also avoid putting college fees on credit cards or borrowing from your own retirement. These could feel good in the moment but aren’t ideal for your longer-term financial health. Credit card interest will add up quickly, and both options can create long-term consequences that outlast the college bills themselves.

Start early, but don’t shortchange yourself

The compounding effect means that a modest monthly contribution started at birth can grow significantly more than a larger contribution started 10 years later. But don’t underinvest in yourself to fund your kids’ college.

Retirement (and your own student loans) comes first. Then direct what’s genuinely available toward kids’ college savings and let time and tax advantages amplify those dollars. The goal is confidence, not perfection—a plan that reflects your full financial picture is better than no plan at all. And you can always adjust as your circumstances change.

Talk with your Northwestern Mutual financial advisor to personalize your approach. Together, you can revisit your plan as your income, goals, and family needs evolve. Your advisor can be your copilot as you move through life.

A clear plan, built on your full financial picture, turns anxious guesswork into confident decisions for your family.

Frequently Asked Questions

How much of my income should I save for my child’s college?

There’s no universal percentage—your ideal contribution depends on your full financial picture, including your retirement timeline, debt load, and available cash flow. Start by building a budget that prioritizes retirement saving first and then direct what’s genuinely available toward a savings tool. Even modest, consistent contributions can grow meaningfully over time. Your Northwestern Mutual financial advisor can help you find a number that fits your situation without shortchanging your own goals.

Should I prioritize my retirement or my child’s college fund?

Prioritize your retirement first. You can borrow for college through loans, scholarships, and grants, but you can’t borrow for retirement. Retirement accounts need decades of compounding to grow, and delaying early contributions creates a gap that’s difficult to close later.

This doesn’t mean ignoring college savings—it means establishing retirement as your non-negotiable baseline and fitting college contributions around it. Underinvesting in yourself now could create a bigger burden for your family down the road.

Can I use a 529 plan if my child doesn’t go to college?

Yes. If your child doesn’t pursue higher education, you have options. You can change the beneficiary to another qualifying family member, or you can leave the funds in the account in case your child returns to school later.

Under the SECURE 2.0 Act, you can also roll over unused 529 funds to a Roth IRA for the beneficiary, up to a $35,000 lifetime limit, subject to certain conditions. These provisions reduce the risk of paying higher taxes and dealing with penalties if all the money isn’t used for education.

How do I balance paying off student loans with saving for my child’s college?

Start by prioritizing high-interest debt alongside your retirement baseline. If you carry student loans with high interest rates, paying them down can offer a guaranteed return that’s hard to beat. Once high-interest debt is under control, direct what’s available toward retirement first and then to college savings.

Avoid the temptation to sacrifice your own financial stability to fund your child’s education—your child has options for college funding that you won’t have for retirement.

What tax credits can I claim for college expenses?

Two main federal tax credits can help offset college costs. The American Opportunity Tax Credit offers up to $2,500 per eligible student for qualified expenses during the first four years of higher education. The Lifetime Learning Credit provides up to $2,000 per tax return for qualified tuition and related expenses, including undergraduate, graduate, or professional degree courses. Eligibility depends on your income and filing status, so verify the details with a tax professional before claiming either credit.

Should I start saving for college now or wait until my child is older?

Start as early as possible. The compounding effect means that smaller contributions started at birth can grow significantly more than larger contributions started years later. Even if you can afford only a small amount each month, the time your money has to grow matters more than the initial contribution size.

As your income grows, you can increase your contributions. Waiting means giving up years of potential tax-advantaged growth that you can’t get back.

This article is not intended as tax or legal advice. Tax credit eligibility and rules vary by income and situation. Consult a tax professional or your Northwestern Mutual financial advisor for guidance specific to your circumstances.

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