In towns like Arlington, many families are doing three big things at once: paying a mortgage, saving for their own retirement and putting money aside for their kids' college. It's natural to wonder which deserves the next dollar. There's no single answer, but there is a sensible way to think it through.

Start with the order of operations

A common rule of thumb is to secure your own retirement savings before going all-in on college. The reasoning is simple: students can borrow for college, but nobody lends you money to retire. A practical order many families use:

  1. Keep an emergency fund so a surprise bill doesn't land on a credit card.
  2. Capture any employer match in your 401(k) or 403(b). Passing up a match is passing up part of your pay.
  3. Set a steady college savings amount you can keep up every month.
  4. Increase retirement savings as raises come, ideally toward your employer plan's limit.
  5. Add to college savings with bonuses, gifts from grandparents or money freed up when childcare ends.

Your situation may call for a different order. The point is to decide on purpose, rather than letting whichever bill shows up first win.

How the Massachusetts 529 deduction works

Massachusetts residents can deduct contributions to the state's 529 college savings plans, the U.Fund and the U.Plan, on their Massachusetts income tax return:

  • Up to $1,000 a year for single filers
  • Up to $2,000 a year for married couples filing jointly

At the state's 5% income tax rate, that's a modest saving, up to about $100 a year. The bigger benefit of a 529 is usually that investment growth is tax-free when the money is used for qualified education expenses. Like any investment, a 529 can lose value, and earnings withdrawn for other purposes are taxed and generally face a 10% penalty. Grandparents can contribute too, which often makes a 529 an easy answer to "what should we give the kids?"

Questions worth asking

  • How much is "enough" for college? You don't have to plan on covering the full sticker price. Many families pick a target, such as a share of in-state public costs, and adjust as the kids get older.
  • Who owns the account? Ownership and beneficiaries matter for financial aid and for what happens if plans change.
  • What if my child doesn't go to college? You can change the beneficiary to another family member. Under federal rules, some leftover 529 money can be rolled into the beneficiary's Roth IRA, subject to a lifetime cap, a 15-year account-age requirement and annual contribution limits.
  • Is our retirement on track? A quick projection of where your savings are headed makes it much easier to decide how much can go to college without regret.

A simple yearly checklist

  • Review your savings rate when you get a raise.
  • Check that your retirement and 529 investments still fit how far away each goal is.
  • Make your 529 contribution before December 31 if you want the deduction for this tax year.
  • Update beneficiaries on retirement accounts and life insurance after any family change.

How we help

We work with families in Arlington and nearby towns to balance near-term goals with long-term ones, in person or by video. Learn more on our Arlington page, or request a complimentary consultation.

Sources

This article is general information, not individualized investment, tax or legal advice. Tax rules change, and how they apply depends on your circumstances. Please consult your tax and legal advisors. Before investing in a 529 plan, read the plan's disclosure documents carefully. Radius Wealth Management LLC provides individualized advice only where permitted to do so.