Learn how to balance multiple financial goals, including saving for education.
Financial management

Invest or save for education? Do both!

5 minute read
  •  
July 21, 2021
Financial management
Prioritizing goals
Article
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Education savings

You’re about to hop on the treadmill when your child asks for help with their homework. Do you ask them to wait or postpone your workout? It’s a common parenting dilemma—how to help your child and tackle other tasks. Even if you’re not a parent, you probably understand the difficulty of balancing multiple priorities.

With investing, you don’t have to choose.

It may feel like day-to-day expenses (child care, mortgage) are all you can afford. But the beauty of investing is that you can save for more than one goal at a time—without going over your budget. Here are some tips on how to fund your child’s education and save for your future.

Start with retirement. 

When you have multiple long-term financial goals, it’s typically best to start with retirement. Life may change, but you’re almost guaranteed to need money in the future. Investing in an IRA lets you build a nest egg with contributions, plus income from interest, dividends, and capital gains—without taxes nipping away at it. Your earnings can compound each year, and if you keep your costs low, you get to save even more of your money.

Learn more about the power of compounding

Sprinkle in college savings.

When balancing saving for education against other financial goals, start small. Contribute what your budget allows for, then adjust as your salary grows or your debt shrinks. Grandparents and other loved ones can also contribute to your child’s college savings. Remember, the key is to start saving early—you can even begin saving for a child’s education before they’re born. And the first step is easy: 

Open an account.

Pick the right account.

There are many ways to save for education, but a 529 plan offers appealing tax benefits, including tax-deferred growth and tax-free withdrawals.* They’re also flexible: You can use your 529 savings for K–12, college, trade school, and grad school tuition, as well as other qualified higher-education expenses.

Like IRAs, 529 accounts benefit from the power of compounding. And since a 529 is solely for education expenses, it can offer a clearer picture of your progress. You can also automate your contributions—so there’s one less thing to worry about.

Learn about The Vanguard 529

Compare account types

Play the long game. 

It’s easier to balance financial needs when you invest for the long term: Start early, ignore risky trends, and stay focused on your goals. Doing so will help you make the best decisions for your money—and your child.

It’s also easier than you think to save for different financial goals. Many adults are already skilled at balancing priorities; it’s how you’re able to exercise while listening to your child’s essay on the aardvark. So shouldn’t your money be doing double duty too?

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*Earnings on nonqualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements. State tax treatment of withdrawals used for i) expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school, ii) expenses related to apprenticeship programs, or iii) student loan repayments is determined by the state(s) where the taxpayer files state income tax. If you are not a Nevada taxpayer, please consult with a tax advisor.

All investing is subject to risk, including the possible loss of the money you invest.

When taking withdrawals from an IRA before age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax.