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Should we fund a 529 plan or focus on our retirement? We asked wealth professionals for advice.
By
Maurie Backman
published
8 March 2026
in Features
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Question: At 54, we're young grandparents. My wife wants to start a college fund for our grandson, but I think we have to focus on funding our retirement. We've already saved $1.8 million. Who is right?
Answer: As of 2022, the most recent year for which data are available, the average retirement savings balance among 54-year-olds was about $313,000, per the Federal Reserve. If you're 54 years old with $1.8 million saved for retirement, you're clearly in a strong position compared to the typical person your age.
Just because you've amassed a $1.8 million fortune by age 54 doesn't mean your work is done, though. If you're planning to stay in the labor force for another decade or longer, you have a prime opportunity to add to your savings and buy yourself even more long-term financial security.
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Sign upWhat if that's your plan, but your wife would rather focus on making contributions to a college fund for your grandson? It's clearly a kind and generous thing to do. But it's important to strike the right balance so that a desire to help your grandson doesn't put your retirement at risk.
Your nest egg needs to take priority
Saving for retirement and funding a college account for a grandchild are both excellent goals. But Eric Croak, CFP and President at Croak Capital, says contributing to a retirement account in the coming years should be your first priority.
"Retirement contributions come first. Period," Croak insists. "Retirement has to come first because there are no scholarships or loans for being old and poor."
John Madison, CPA and personal financial counselor at Dayspring Financial Ministry, agrees.
"As a young grandparent myself, I appreciate the desire to help your precious grandchildren get a head start on college funding," he says. "However, any contributions to a grandchild's 529 account should only be made after carefully considering your own retirement funding needs."
Madison says that in this situation, it pays to aim to contribute 15%-20% of your income toward retirement. But if there's money left over beyond that, then by all means, fund a 529 plan or another college account of your choice.
Croak agrees with this approach and says that even if prioritizing college savings doesn't make sense today, there may be opportunities to do so in the future.
"Life often has a way of providing more financial flexibility down the road, whether it’s an extra bonus year, an inheritance, or a fully paid-off house," he says. "If they maximize their retirement accounts first, they can always 'superfund' a 529 later."
Croak explains that 529 plan contributions can be front-loaded with five years of gift tax exclusions at one time.
"Knowing that possibility exists means there’s no need for over-funding now," he says.
Don't assume a 529 plan cuts off access to funds
If your grandson is fairly young, you may be eager to start saving for his education now, when that money still has years to grow. The danger of prioritizing a 529 plan is losing out on money you may end up needing for retirement if your portfolio doesn't grow as much as you'd like.
But Matt Hylland, financial planner and investment advisor at Arnold and Mote Wealth Management, says you may have more flexibility than expected.
"Realize that 529 contributions are not irrevocable." — Matt Hylland
"It is smart to be thinking about how much you can comfortably save today in a 529, because the tax-free compounding growth is so valuable," Hylland says. But, he continues, "Realize that 529 contributions are not irrevocable. If your retirement planning does not go to plan, you will have access to the money in the 529 account."
When a 529 plan is used for non-qualifying withdrawals, earnings are subject to income taxes and penalties, Hylland explains. However, your original contributions are not (though some states may claw back income tax deductions on contributions).
"Putting money in a 529 now will give decades for tax-free growth, potentially," Hylland says. "That value may greatly outweigh the small likelihood of needing an emergency withdrawal and paying taxes."
Choose your college account strategically
If you don't like the idea of tying up college funds in a 529 plan because you might need the money for retirement and don't want to face penalties, Hylland says there are other types of accounts you can consider utilizing instead.
"You could start a new brokerage account that is earmarked for future college goals," he says.
"This is not as tax-efficient as a 529. You will be subject to ongoing taxes on dividends and interest, along with capital gains. However, you will eliminate any income tax and penalties if you ultimately need the money for other uses."
Look at the big picture
While Madison agrees that retirement savings should take priority over helping a grandchild go to college, ultimately, his suggestion is to look at the total financial picture before deciding what to do. In addition to the $1.8 million already saved, Madison suggests factoring in other planned income streams, like Social Security and pensions.
From there, he says, you can run projections based on where you are today and your anticipated retirement spending needs.
"If this in-depth study shows they are on track for meeting their retirement income needs, easing up on additional retirement contributions to instead fund a 529 would be perfectly reasonable," he says.
Your projected retirement age should also factor into the decision. Although some people end up having to retire sooner than planned, a $1.8 million nest egg left untouched for 13 years could grow to $3.8 million at a somewhat conservative 6% annual return.
If all goes according to plan, you may end up with more than enough retirement savings even if you contribute minimally to an IRA or 401(k) in the coming years. So while it's good to keep funding those accounts to build in a buffer for a forced early retirement, a slower-than-average market, or other suboptimal scenarios, after doing a financial deep dive, you may find that you have more leeway to fund that college account than you thought.
Do you have a tricky money situation? We want to hear about it for an upcoming advice column. We're interested in retirement-related financial dilemmas, especially those that impact relationships with partners, friends and family. You will remain anonymous. Submit your question to [email protected]. Not all questions will be published.
Read More
- Use the Grandparent Loophole to Maximize College Savings
- 529 Funds and a Roth IRA: How to Use One to Jumpstart the Other
- We Retired at 70 With $4.3 Million. My Wife Won't Spend 'Our Grandkids' Inheritance,' but I Want to Travel.
- I Retired at 63 to Enjoy My Free Time but My Grown Kids Want Help With Child Care. I Love My Grandkids, but It's Too Much. What Should I Do?
Maurie BackmanContributing WriterMaurie Backman is a freelance contributor to Kiplinger. She has over a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. She has written for USA Today, U.S. News & World Report, and Bankrate. She studied creative writing and finance at Binghamton University and merged the two disciplines to help empower consumers to make smart financial planning decisions.
