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Retirement Planning is Daunting

When you created your financial plan, saving for a new car or a first home may have seemed like your most pressing goal. You probably started saving for retirement. But chances are good that your more immediate goals were the ones on your mind.

An older couple sitting close to each other looking out.

Then you realized college wasn’t so far off after all. While retirement is years away, you know that it’s time to step up your game to have a comfortable retirement. But how can you possibly save for both goals at the same time?

Retirement is the first priority

Think about your potential income sources once you retire. Social Security benefits may be available to you. You might also have pension benefits coming to you from a current or former employer. But these income sources might not be enough to provide the lifestyle you want throughout a long retirement. The solution: Saving as much as possible in an employer’s tax-favored retirement plan, an individual retirement account (IRA) or an investment account can potentially help you accumulate a healthy nest egg.

Generally, assets in IRAs, 401(k)s, and similar plans won’t be included in the calculation of your expected family contribution to education costs. If you need cash for college, you’ll be able to withdraw money from your IRA without penalty to pay qualified higher education expenses, although income taxes may apply.

Save for college

By starting to save for college while your child is young, you may be able to amass substantial assets. Section 529 college savings plans* allow savings to accumulate tax deferred, and distributions to pay qualified higher education expenses at an eligible institution are tax free. Plans are set up to benefit a designated beneficiary, but if that child doesn’t use the funds, the beneficiary can be changed to another family member without tax consequences. Funds in 529 plans typically are treated as parents’ assets for financial aid purposes.

Planning ahead can help you save enough money to reach all of your important goals and make retirement a little less daunting.

Notices & Disclosures

*Certain benefits may not be available unless specific requirements (e.g., residency) are met. There also may be restrictions on the timing of distributions and how they may be used. Before investing, consider the investment objectives, risks, and charges and expenses associated with municipal fund securities. The issuer’s official statement contains more information about municipal fund securities, and you should read it carefully before investing.

Article is adapted from content provided by DTS.

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