Education Savings Planning

You’ve got a 6-year-old and a 3-year-old. College is 12-15 years away, and you have no idea how much it’s going to cost or how much you should be saving. Your parents paid for your college, so you feel like you “should” pay for your kids’ college too—but you’re not sure you can afford it without sacrificing your own retirement.

Here’s what most Phoenix parents don’t realize: you can borrow for college, but you can’t borrow for retirement. Funding your own 401(k) and IRA first is smarter than overfunding a 529 and showing up to retirement broke. Your kids will be fine with student loans if necessary. You won’t be fine without retirement savings.

We help Phoenix families figure out how much to save for college, whether a 529 plan makes sense, and how to balance education savings with your own retirement needs without guilt or confusion.

Arizona 529 Plans: The Good and the Bad

Arizona offers a 529 plan, but it’s not as good as some other states’ plans. You don’t get a state tax deduction for contributions (Arizona doesn’t tax much to begin with), and the investment options are decent but not amazing. Some people choose to use other states’ 529 plans (like Utah’s or Nevada’s) for better investment options.

That said, 529 plans are still one of the best tools for education savings because of tax-free growth. You contribute after-tax money, it grows tax-free, and comes out tax-free if used for qualified education expenses. If you’re planning to save for college, a 529 should probably be part of your strategy.

Contributions up to $4,000 per beneficiary per year ($8,000 if married filing jointly) qualify for an Arizona state income tax deduction. Given Arizona’s relatively low state income tax, this saves you maybe $200-400/year—better than nothing, but not a game-changer.

How Much Should You Save?

The average cost of four years at an Arizona public university is around $100,000-120,000 in today’s dollars (tuition, room, board, fees). Private universities run $200,000+. By the time your kid graduates high school, those numbers will be higher.

Should you save enough to cover 100% of college costs? Maybe not. Most financial advisors recommend saving enough to cover 50-75% of projected costs, assuming your kid will contribute through part-time work, scholarships, or modest student loans. Saving 100% often means sacrificing too much of your own retirement, and it removes your kid’s skin in the game.

If you’ve got 15 years until college and you save $500/month in a 529 earning 6% average returns, you’ll have about $145,000—enough to cover most of the cost at an Arizona public university or a big chunk of a private school.

What If Your Kid Doesn’t Go to College?

The biggest fear parents have with 529 plans: “What if my kid doesn’t go to college?” You’re not stuck. You can change the beneficiary to another kid, a grandkid, or even yourself if you want to take classes. You can withdraw the money for non-education expenses (you’ll pay taxes and a 10% penalty on the earnings, but you get your contributions back penalty-free).

Starting in 2024, you can also roll up to $35,000 from a 529 into a Roth IRA for the beneficiary if the account has been open for 15+ years. So even if your kid doesn’t go to college, that money can still become retirement savings for them.

What We Do

We help Phoenix families figure out how much to save for college based on realistic projections, how much you can afford without sacrificing retirement, and whether a 529 plan makes sense or if you should use other savings vehicles. We also coordinate with your overall financial plan to make sure education savings doesn’t derail your other goals.

The Bottom Line

College is expensive, but sacrificing your own retirement to overfund a 529 is a mistake most parents make. Your kids have options for college—scholarships, part-time work, student loans. You don’t have options for retirement. Save for college, but not at the expense of your own financial security.

Want to figure out how much to save for college without sabotaging your retirement? Let’s build a plan.