Few financial goals stir stronger emotions than helping a child pay for college. Still, your retirement must remain the priority. Striking the right balance between these two goals often means making tough decisions. Fortunately, innovative use of tax-advantaged accounts can help you progress on both fronts.

‍Why retirement comes first

There are no scholarships for retirement. If your savings fall short, you can't take out a loan to make up the difference. That's why financial professionals often say: Fund your retirement first. It’s not selfish. It’s pragmatic.

Your children will have time and options to navigate student loans, work-study programs, and school selection. You won’t have the same flexibility if your retirement nest egg is underfunded.

Understand your tax-advantaged toolkit

Here’s a breakdown of the main tax-advantaged accounts that can help you meet both college and retirement goals:

401(k)s and 403(b)s: These employer-sponsored plans offer tax-deferred growth and often come with matching contributions. They should usually be your first stop.

Traditional and Roth IRAs: Depending on your income and eligibility, these accounts allow additional retirement savings with favorable tax treatment.

529 plans: Designed specifically for education savings, 529 plans offer tax-free growth and withdrawals for qualified education expenses.

Coverdell ESAs: These accounts offer similar tax benefits to 529s but with lower contribution limits and more restrictions.

New opportunities from recent legislation

Recent laws have reshaped how families can approach education and retirement savings. Two provisions stand out:

Roth conversion rollover from 529 plans: Starting in 2024, beneficiaries of 529 plans can roll over up to $35,000 into a Roth IRA in their name, provided the 529 has been open for at least 15 years.

This new provision, introduced under the SECURE 2.0 Act of 2022, allows unused education funds to support retirement savings, reducing the perceived risk of “overfunding” a 529. Annual Roth IRA contribution limits still apply, so rollovers may need to be spread over several years.

Increased lifetime gifting exclusion: The One Big Beautiful Bill Act (OBBBA) raised the basic exclusion amount to $15 million per person starting in 2026, indexed annually for inflation using 2025 as the base year.  This makes it easier for high-net-worth families to contribute generously to 529s or custodial accounts as part of a long-term estate plan.

How to prioritize your contributions

The question isn’t whether you should save for college or retirement. It’s how to do both efficiently. Here’s a practical order of operations:

Maximize employer match in your 401(k): This is free money. Don’t leave it on the table.

Fund a Roth IRA (or traditional IRA if eligible): A Roth IRA offers flexibility. You can withdraw your contributions at any time without taxes or penalties. That’s a potential backup source for college expenses. Plus, Roth withdrawals in retirement are tax-free.

Consider contributing to a 529 plan: Once retirement is on track, you can begin making regular contributions to a 529. Many states offer tax deductions or credits for 529 contributions, and the funds grow tax-free for education expenses.

Evaluate additional retirement savings: If you still have room in your budget, increase your 401(k) or IRA contributions. Use automatic transfers to stay consistent.

Look into custodial accounts or taxable brokerage accounts: For families aiming to maintain flexibility, a taxable brokerage account can supplement 529s, especially for non-qualified expenses or to avoid financial aid impacts tied to student-owned assets.

What if you started late?

If you’re behind on retirement savings but your child is approaching college, avoid the temptation to sacrifice your retirement plan entirely. Instead, explore:

• Community college for the first two years
• In-state public universities
• Scholarships and grants
• Work-study programs
• Federal student loans at low interest rates

Your willingness to support your child is admirable. Still, it’s better to set boundaries now than rely on your children financially during retirement.

Use flexibility to your advantage

One of the most overlooked advantages of Roth and even traditional IRAs is the ability to use them under certain conditions for qualified education expenses without the usual 10% early withdrawal penalty. Note that income taxes still apply on the earnings portion (except for qualified Roth distributions), but avoiding the penalty can provide much-needed flexibility.

Similarly, parents over age 59½ can access their retirement funds without penalties. This creates another option if college costs become overwhelming, though it should be a last resort.

Coordinate financial aid strategy

Retirement accounts are not counted as assets on the FAFSA, or Free Application for Federal Student Aid. Students in the United States fill out the FAFSA to apply for financial aid for college.

That makes retirement accounts advantageous when applying for federal aid.

529 plans owned by a parent are treated as parental assets and have only a small impact on aid. When considering 529 plans owned by grandparents, it's essential to approach them with caution. A 529 plan is a tax-advantaged savings account to help families save for future education expenses.

One key consideration is how the funds in a grandparent-owned 529 plan are treated when considering student financial aid. Traditionally, withdrawals from these plans counted as student income, which could significantly impact a student's eligibility for financial aid. Although recent changes have made this less detrimental, the timing of withdrawals still plays a crucial role in determining how they will affect financial aid packages.

Families should plan withdrawals carefully to optimize financial aid eligibility. It may be beneficial to withdraw funds when the student is not receiving aid or to time the withdrawals when the student is no longer in the financial aid calculation phase (for instance, after the first year of college).

Bringing it all together

Balancing these goals requires a deliberate plan. Here are a few key strategies:

• Automate your savings to both 529 and retirement accounts
• Reassess your budget annually
• Involve your child in the college decision-making process
• Work with a financial advisor to model trade-offs

Final thoughts

It’s natural to want to give your children every advantage. That desire should be honored, not ignored. But prioritizing your financial independence can ultimately be the most generous act. The better your retirement plan, the less your children need to worry about supporting you.

With the expanded flexibility introduced by the OBBBA, you can now approach this balance more confidently. Use these tools to build a future where you and your children thrive.

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Disclaimer: Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through TOP Private Wealth, a registered investment advisor and separate entity from LPL Financial.