Funding higher education and saving for retirement are key financial goals for many clients. However, the way forward is not to choose one priority over the other. Rather, families must find an efficient and effective way to invest for both—albeit, typically, at the same time and with the same pool of available assets. Here are three tips to help your clients stay on track.

Best practice tip #1: Know how much you need to save. 

To build retirement savings: Some financial professionals suggest higher-earning families invest 10% to 15% of gross income each year to save enough for retirement. But, in adopting this approach, it’s also a good practice to pre-set specific checkpoints; i.e., times to assess progress—and make adjustments, if needed. 

For example, a client with an annual household income of $200,000 ideally would have $540,000 in current retirement savings by age 45. (See exhibit 1 below from the 2025 Guide to Retirement.) 

To fund higher education: The know-your-savings-number theory is equally important—but works a bit differently. To fund a college education, start with the age of your student and the percentage of the total cost you plan to cover.

In 2025, one-year cost of an in-state public college averages $24,920. At an out-of-state public college, this cost averages $44,090. One-year cost is even higher at a private college, averaging $58,600 a year.

Moreover, by some estimates, when annual price increases are factored in, four years of private college could jump from about $250,000 for today’s freshmen to well over $600,000 by the time a child born today applies for college, according to 2025 J.P. Morgan Asset Management College Planning Essentials.

It’s easy to see how college can be one of a family’s largest expenses. 

Best practice tip #2: Maximize long-term savings with tax-advantaged accounts.  

Remind your clients of the power of compound interest—and how it can be amplified by tax-free growth.

Build retirement savings: Maximizing 401(k) and IRA contributions, including tax-free Roth options, can grow retirement funds more efficiently over time, as well as provide additional savings families need. Target-date funds can offer retirement savers a diversified and disciplined approach built for long-term investing.

Fund higher education: 529 plans are powerful savings vehicles, offering tax-free growth and withdrawals for qualified education expenses. Yet, despite these advantages, only 37% of college savers utilize tax-advantaged 529 plans specifically designed for higher education: Half  of all college savers still rely on low-yielding bank accounts or certificates of deposit (CDs).

Additionally, many families divert funds intended for education into 401(k)s and IRAs, which are designed for retirement rather than college tuition expenses. Astonishingly, $1.5 trillion in education savings is currently held outside of 529 plans, with $373 billion sitting in cash.

Unfortunately, these families failed to grasp the substantial tax benefits 529 plans offer:

• Contributions grow on a tax-deferred basis. This allows investments to compound more effectively over time and potentially outpace taxable investments with the same return rate.
• Withdrawals for qualified education expenses are tax-free when it’s time to cover college costs.

Consider this simple example: A 529 account and a taxable account are each funded with a $10,000 initial investment and $500 monthly contributions over 18 years. Both accounts earn 6% annual investment returns. 

However, families with the taxable account keep only 4.1% of that growth—the rest goes to taxes. Consequently, the tax-free account could be worth $41,534 more for a child’s education—a significant advantage.

Best practice #3: Have separate savings and investment goals.

Retirement and education funding goals are more likely to be attained if clients have a discreet savings plan for each. However, when it comes to prioritizing goals, retirement funding should come first. Why? Because unlike for higher education, there’s no financial aid available for bridging a retirement funding gap.

To fund retirement: Clients aiming to actively fund both retirement and 529 plan accounts should at least contribute an amount to their 401(k) that qualifies them for their company’s match, if offered, as employer contributions can boost retirement savings.

To fund higher education: Clients should avoid taking distributions from a retirement account to pay for college expenses. Every diverted retirement dollar represents years of lost investment earnings and compounding opportunities.

As the chart below illustrates: Withdrawing $25,000 for college could leave parents with $80,178 less for their retirement. To make up for that shortfall, parents would have to invest $479 each month to recoup both the withdrawal amount and lost investment gains within five years. Further, in certain situations, spending retirement money on college may also trigger taxes and penalties. 

As with many aspects of life, balance is the key to managing the dual goals of funding college and retirement. The good news is that with careful planning, disciplined investing, and the guidance of a financial professional, clients can successfully realize both ambitions.

For more information, visit J.P. Morgan’s College Planning Essentials as well as J.P. Morgan’s Guide to Retirement. 

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