How much will tuition cost when your child is ready for college? By the time freshman year rolls around, college expenses may have skyrocketed. So it makes sense to start saving for your child’s education as early as possible.

However, you probably have another goal that’s going to require significantly more savings than college: your own retirement. While saving for a retirement that’s far in the future may seem like a lower priority, keep in mind that your child can always borrow money to pay for an education. But no one is going to give you a loan to fund your retirement.

There’s no getting around it. You should be saving for both goals at the same time. Easy? Of course it’s not. But it’s not impossible either. By taking advantage of tax-favored savings vehicles, you can set money aside for college and retirement.

On Your Own with Retirement Saving. Once you retire, you may receive Social Security benefits. You might even be entitled to pension benefits from a past or current employer. However, these sources alone might not provide enough income for a comfortable lifestyle all throughout retirement. Saving as much as possible in an individual retirement account (IRA) or an employer’s qualified retirement savings plan can potentially help you accumulate a tidy nest egg.

And there’s more good news. Assets in IRAs, 401(k)s, 403(b)s, and similar plans generally won’t be included when colleges calculate your expected family contribution to education costs. What’s more, if you’re short on cash for college, you can withdraw money from your IRA penalty free to pay qualified education expenses.

Sock It Away in an Education Savings Plan. You may be able to accumulate substantial savings for college if you start saving while your child is young. Section 529 plans* allow savings to grow tax deferred and offer tax-free distributions for qualified education expenses. Funds in Section 529 plans are typically treated as parents’ assets for financial aid purposes. The money must be used for qualified education expenses of the beneficiary (or certain other relatives of the original beneficiary) to qualify for tax-free withdrawal.

With a little planning, you’ll increase the likelihood that you can save enough money for all your goals.

* 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.

 

This Just In

Only one in five adults has changed investment strategies recently, despite the economic recession that began in late 2007, according to a December 2010 24/7 Wall St./Harris Poll survey. When asked to consider their strategy over the next five years, 39% of respondents said they expected to increase the amount they invest.

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The IRS offers its first application that allows smartphone users to check on the status of their tax refund and receive tax planning tips and reminders. The IRS2Go app works with iPhones and Android phones.

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According to the Social Investment Forum Foundation’s 2010 Report on Socially Responsible Investing Trends in the United States, socially responsible and sustainable investing (SRI) assets have increased more than 34% since 2005.

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The Spectrem Group’s Affluent Investor Confidence Index reports the factors that most affected wealthy investors’ investment plans in October 2010 were stock market conditions, 21%; economic environment, 20%; retirement, 10%; household cash flow, 10%; political climate, 8%; and household income, 2%.

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The Center for Retirement Research at Boston College reports that Baby Boomers (individuals born between 1946 and 1964) are likely to receive inheritances totaling upwards of $8 trillion over their lifetimes. Among the two thirds of boomer households that are expected to receive an inheritance, the median amount is $64,000.