Your 50s are filled with major life changes, making financial planning in your 50s more important than ever. From helping kids through college to becoming an empty nester and preparing for retirement, each transition brings new opportunities and new decisions. In this episode of the Wise Money Show, we break down the biggest financial transitions most people face in their 50s, the mistakes to avoid, and the planning strategies that can help you stay on track.
Season 11, Episode 50
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This information is for general financial education and is not intended to provide specific investment advice or recommendations. All investing and investment strategies involve risk, including the potential loss of principal. Asset allocation & diversification do not ensure a profit or prevent a loss in a declining market. Past performance is not a guarantee of future results. This video may discuss estate planning concepts but does not constitute legal advice. Please consult an attorney for advice specific to your situation.
529 Plans: A Smart Way to Prepare for College Costs
Paying for college can become one of the biggest financial obligations families face, and it often arrives at a particularly important time. For many parents, their children enter college just as they reach their peak earning years and begin getting more serious about retirement. That makes education funding an important part of financial planning in your 50s.
A 529 plan can help families prepare for education expenses without allowing those costs to completely disrupt other financial priorities. But getting the most from a 529 account requires understanding how the account works, starting early when possible, and knowing how college savings fit alongside your retirement goals.
What Is a 529 Plan?
A 529 plan is a tax-advantaged account designed to help families save for qualified education expenses. Contributions are made with after-tax dollars, but investments within the account can grow tax-deferred. When the money is withdrawn for qualified education expenses, those earnings can generally come out federal income tax-free.
Qualified expenses can include college tuition and fees, books, supplies, computers and certain room-and-board expenses. Depending on the circumstances, 529 funds can also be used for other eligible education expenses.
Some states provide additional incentives for contributing to a 529 plan, such as a state income tax deduction or credit. Because those benefits vary by state, it’s important to understand the rules that apply to your specific situation.
Start Saving Before You Know the Final College Plan
One challenge with college planning is that parents often don’t know exactly what they’re preparing for.
Will your child attend an in-state public university or a private college? Will they receive scholarships? Will they commute from home? Could they choose a trade school or another educational path instead?
You don’t necessarily need all those answers before you begin saving.
Starting earlier gives the money more time to potentially grow and gives you greater flexibility when college arrives. You can refine your funding goal as your child gets older and their plans become clearer.
This also gives parents time to decide how much of college they actually intend to pay. Some families want to cover the entire cost, while others want their children to contribute through work, scholarships, or other resources. There isn’t one approach that works for every family.
Don’t Sacrifice Retirement for College
This becomes particularly important when financial planning in your 50s overlaps with college funding.
Parents may be tempted to reduce retirement contributions, take on debt, or pull substantial amounts from other savings to pay for college. Before doing so, consider how those decisions could affect your own financial future.
Your 50s can be critical retirement-saving years. You may be earning more than you did earlier in your career, and once you reach age 50, you may also have access to catch-up contributions within certain retirement accounts.
The goal should be to find an appropriate balance between helping your children and continuing to prepare for your own retirement. College offers families several potential funding options. You don’t have the same flexibility when it comes to funding your retirement.
Adjust Your 529 Investments as College Approaches
Saving enough isn’t the only consideration. You also need to think about how the money is invested.
When your child is young, you may have many years before you’ll need the funds. As college gets closer, however, your investment time horizon becomes much shorter. Money you’ll need for a tuition payment in the next year or two generally shouldn’t be treated the same as money you won’t need for another decade.
Reviewing your 529 investment strategy as your child approaches college can help make sure the amount of risk you’re taking remains appropriate for when you’ll need the money.
What If Your Child Doesn’t Need All the Money?
One concern parents sometimes have is overfunding a 529 account. What happens if your child receives a scholarship or doesn’t use the entire balance?
529 plans offer several options that can provide flexibility. Depending on the circumstances, you may be able to change the beneficiary to another eligible family member, preserve the account for future education expenses, or take advantage of other available strategies.
Current law also allows certain unused 529 assets to be rolled into a beneficiary’s Roth IRA when specific requirements are satisfied. This strategy comes with restrictions, including eligibility, timing and contribution limits, so it should be evaluated carefully rather than treated as an automatic solution for excess 529 savings.
Make College Part of the Bigger Financial Plan
A 529 plan can be a powerful education savings tool, but the account shouldn’t exist in isolation.
College funding can affect cash flow, taxes, investments, debt decisions and retirement savings—all at the same time. That’s why the years leading up to college can be such an important part of financial planning in your 50s.
Instead of waiting until the first tuition bill arrives, consider how much you want to contribute toward your children’s education, whether your current savings are on track, how your 529 account is invested, and how those decisions interact with your retirement plan.
The objective isn’t simply to save as much as possible for college. It’s to prepare intentionally so you can help your children pursue their education while continuing to make progress toward your own long-term financial goals.
