If you do an online search looking for what types of expenses have experienced the highest rate of inflation over the last few years, two areas continue to be high on the list: college tuition and healthcare. Unfortunately (and probably not coincidentally), these are two areas of keen concern for many high-net-worth families as they juggle two priorities: higher education funding and saving for a secure retirement.
Even families with ample resources sometimes struggle with reconciling the need for a desirable retirement lifestyle with the need to provide a quality education for a rising generation. While funding a college education may not create an immediate financial strain, it does pose different questions for parents and grandparents: how much should we pay, from which assets, and what is the most strategic way to do it?
How can high-net-worth families find the balance for college funding vs. retirement?
Several considerations apply to negotiating the balance between education costs and retirement funding. These considerations should be part of a broader financial plan that protects the retirement that you work decades to build.
1. Prioritize retirement
We’ve all heard the advice from the airlines: “Put on your own mask first, then assist the child traveling with you.” The same applies to the choice between college funding vs. retirement. We never do our children a service by jeopardizing our own long-term financial security on their behalf. In other words, one of the greatest financial favors we can give our children (or grandchildren) is freedom from the obligation to care for us in our old age.
A common misconception among affluent parents is that a large portfolio automatically means retirement is secure. In reality, the answer depends on the family’s spending needs, investment strategy, longevity, tax exposure, and future goals.
2. Maximize tax-advantaged sources
The 529 education savings plan, with tax-free growth and compounding and tax-free withdrawals for qualified educational expenses, has been a great gift to American families. Since 1996, parents, grandparents and others have accumulated some $602 billion in 529 plans nationwide, with an average plan balance of just over $34,000 at the end of 2025. Still, less than a third of families are taking advantage of this tax-efficient and flexible savings opportunity. A 529 plan can provide the opportunity for accelerated gifting, allowing you to contribute up to five years of annual gift-tax exclusions at once into a 529 account, maximizing tax-free compounding for school. The key here is to start early to get the most benefit from the tax-free growth. And remember, if you have a balance remaining in a 529 plan when a student graduates, the beneficiary can be changed to a younger sibling or other relative. If everyone has graduated and there’s still money left in the plan, it can even be rolled over to a Roth IRA for the designated beneficiary, up to a lifetime maximum of $35,000.
Don’t overlook the estate planning opportunity.
For many high-net-worth families, retirement and education funding are entwined with estate planning as they seek to maximize benefits to current and future generations while minimizing tax liability for the estate. Accordingly, some families may choose to embed education disbursement rules inside irrevocable family trusts or deploy generation-skipping strategies to coordinate tuition with legacy goals. Such strategies may not only reduce future estate tax exposure by removing assets from the taxable estate; they may also aid tax-efficient transfer of assets to future generations, reinforce family values around education, and allow retention of control while promoting better stewardship of resources.
Affluent families may also find it advantageous to reduce the taxable estate by direct gifting to educational institutions on behalf of their students. Such gifts, which can be used alongside 529 plans and other funding sources, provide a 100% exemption for estate and gift tax purposes and may be coordinated between parents and grandparents to provide educational support without reducing other gifting opportunities (i.e., direct tuition gifts do not reduce your annual gift or lifetime estate tax exclusions).
Education funding should be aligned with a broader wealth strategy. After all, the objective isn’t simply to write the tuition check. It’s to help the next generation succeed while preserving the financial independence and legacy of the generation providing the support.
At JFS Wealth Advisors, we understand that affluent clients must balance goals and priorities to achieve desirable outcomes for current and future generations. Our fiduciary approach to financial planning can ensure that your family’s unique needs and resources are carefully integrated into your plan for education and retirement funding. Please visit our website to learn more.
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