Paying for college while still preparing for retirement is one of the most financially demanding periods of life. For high-income households, the challenge isn’t just affording education—it’s doing so without disrupting long-term financial security.
529 College Savings Plans
One of the most effective tools for education savings is the 529 plan. These accounts offer tax-deferred growth, and withdrawals are tax-free when used for qualified education expenses.
High-income earners can front-load contributions by taking advantage of the five-year gift tax averaging rule—allowing up to $95,000 per beneficiary (as of 2025) without incurring gift taxes. This strategy can supercharge savings early on, maximizing compounding over time.
In addition, some states offer state tax deductions or credits for 529 contributions, making these plans even more appealing.
Roth IRAs for Education
While primarily used for retirement, Roth IRAs can also serve as a backdoor education funding vehicle. Contributions (but not earnings) can be withdrawn at any time without taxes or penalties. If used for qualified education expenses, even earnings can be withdrawn without penalty—though they may still be taxed.
This dual-purpose flexibility makes Roth IRAs particularly useful for those seeking more control over their funds.
Gifting and Trust Strategies
In certain cases, it may be worth considering irrevocable trusts to help fund education. Trusts can provide asset protection, estate tax reduction, and control over how the funds are used.
Direct tuition payments to an institution are another underutilized strategy. These payments are exempt from gift tax limits and can be made in addition to annual gift exclusions.
Avoiding Retirement Shortfalls
It’s tempting to prioritize children’s education at the expense of retirement savings—but this often leads to long-term financial stress. Remember: your children can borrow for college. You cannot borrow for retirement.
Continue maximizing contributions to retirement plans like 401(k)s, 403(b)s, and IRAs. If your income exceeds the limits for Roth IRAs, consider backdoor Roth strategies.
If cash flow is tight, consider adjusting lifestyle expenses or reevaluating business profitability to free up additional savings.
Financial Aid and Tax Planning
Despite higher income levels, some families may still qualify for merit-based aid or other school-specific scholarships. Also, keep an eye on the tax implications of education-related deductions and credits, like the American Opportunity Credit, although many high earners phase out of eligibility.
Conclusion
Funding college without compromising retirement is not only possible—it’s highly achievable with the right strategy. Leveraging the tax benefits of 529s, Roth IRAs, and smart gifting strategies can help secure your child’s future without sacrificing your own.
Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC. Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. Advisory services offered through Sanctuary Advisors, LLC., a SEC Registered Investment Advisor. Tenet Wealth Partners is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.
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About The Author
Jama Grotelueschen, CFP®Associate Wealth Advisor
Jama Grotelueschen joined Tenet Wealth Partners in 2024. As a CERTIFIED FINANCIAL PLANNER® professional, she has experience in investment management, financial planning, as well as employer benefit plan and trust administration. Growing up in a family of educators, Jama especially enjoys building relationships with clients and helping them integrate all aspects of their financial life […]
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