Saving for the future while paying for college expenses

Caught between saving enough to retire comfortably, and paying for your child’s college education? Financing a college diploma can be quite costly, but there are many options available to help you save for this important goal. Take steps now to plan ahead for college expenses, while still saving for your own future. It’s possible to do both!

How can I save and pay for college expenses?

As you know by now, the burden of paying for living expenses in retirement is increasingly shifting to individuals. And while you can borrow for your child’s college, you may not be able to borrow as easily for your retirement. Here are a few tips to follow to both save for your own future and put money aside for your child’s college expenses:

• Put yourself first. Although your instinct may be to continue to take care of your child’s needs first, when it comes to your future, your needs should take a front seat for a change. In general, consider saving for college only after maximizing the various retirement savings options (401(k), IRA, etc.) available to you. Also keep in mind your age, risk tolerance, and retirement goals when you're investing your savings.

Ask yourself whether you’re invested in the right mix of investments for your age, risk tolerance, and retirement goals. Need some expert help? You may want to consider meeting with an investment professional who can help you determine a strategy that meets your needs. For free 1:1 support with your investment strategy, you can call the Hewlett Packard Enterprise Benefits Service Center at Fidelity at 1-800-409-4015 from 7:30 a.m. to 11:00 p.m. CT.

• Prioritize your spending. You'll need to prioritize when you face a choice to spend today or to save for your retirement or your child’s college education. You may not be able to take that vacation and save for both these goals. Think about where you can cut expenses on unnecessary items and redirect those dollars to your retirement savings and your child’s college education. Making regular monthly contributions to an investment or savings account can really add up over time.
• Open a college savings account. Start putting away money while your kids are still in diapers so your savings has time to grow. If they’re already on the fast track to graduating from high school, it’s not too late. To help keep your own retirement savings separate, consider using a tax-advantaged savings vehicle specifically designed for education, such as a:
  • 529 savings plan. You own the account and make contributions that can be used for your child’s tuition, books, dorm, etc. There are no taxes on accumulated earnings as long as the money is used for IRS-approved education-related expenses. However, a penalty will be charged for money withdrawn for non-education-related expenses.
  • Uniform gifts to minors/uniform transfers to minor account (UGMA/UTMA). Funds in these accounts—which are invested in your child’s name—can be used for any expense for the benefit of the child, not just school. The child eventually controls the account after reaching a certain age. Withdrawals are then taxed at the child’s tax rate.
  • Coverdell education savings account. Earnings on contributions to this account grow tax-free and withdrawals made for education expenses are also tax-free. The drawback is a maximum annual contribution limit of $2,000 per beneficiary (the two accounts above generally have higher annual contribution limits; talk to a financial advisor to learn more). In this account, which is formerly known as the Education IRA, the parent controls the account and the child is the beneficiary.

Need help paying for college?

If you’re like most parents today, you simply won’t be able to pay for all of your child’s college bills. But there are more options available than you may think. You may want to:

• Claim an educational tax credit. If your child is already in college or headed there soon, be sure to take advantage of the American Opportunity Credit (AOC). If you’re eligible, you can claim a credit each year on your tax return for certain expenses, including tuition, books, and course materials. To take advantage of the tax credits, you’ll need to submit IRS form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), with your federal tax return to the IRS (the form is available in PDF format from the IRS website).
• Get creative. You may need to make some sacrifices if you’re determined to help foot the bill. For example, a non-working spouse can return to work. Students can attend a less costly public university rather than a private one. They can also commute to school rather than live on campus, get a work-study job, and more.
• Take advantage of financial aid, scholarships, and loans. Don’t rule these options out, even if you think you earn too much to qualify. According to the College Board's annual report "Trends in Student Aid" (2025), in 2024-25, undergraduate and graduate students received $275.1 billion in grants from federal loans, Federal Work-Study (FWS), and federal tax credits and deductions.¹ Visit https://studentaid.gov.

No matter what, keep saving for your future

Whichever route you decide to take in saving for your child’s college expenses, don’t let your own savings completely take the back seat. Even if you’re years from paying for college, you can do something besides worry about how to pay for both. Continue to contribute to your retirement account and stash away an extra amount into a college savings account. It’s never too late—or too early—to get started.

¹College Board | Trends in College Pricing and Student Aid 2025 | Nov. 2025

Keep in mind, investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

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