Question about 529 v 401K
I was reading this article on Investopedia. I'm trying to decide how to save for my son's college. We will be 57 years old when he starts college. Right now we're each saving 8% in our 401K (no where near the max contribution) which is enough to get the matching contributions from our employers. If we have a limited amount of extra funds, should we up our 401K contribution or put a minimal amount in both 401 (or IRA) and a 529. I'm confused and the article doesn't help me understand it any better.
"2. Are you already carrying a heavy debt load?
Middle-income families are more likely to be headed up by college-educated parents, so they're more likely to include private schools in their application pools. These families generally don't qualify for Pell Grants or the full Perkins loans, but usually qualify for fully subsidized Stafford loans. Although they generally have less financial need, they may also lead high-consumption lifestyles that leave them feeling that their expected family contributions are too large. Furthermore, those that opt for private colleges tend to take large PLUS loans, which they may struggle to repay. In addition, their kids often take maximum combined subsidized and unsubsidized Stafford loans, and higher-rate non-Federal private loans, often resulting in eventual repayment delinquency and default.
By recognizing these traps in advance, these families can benefit from careful budgeting. This will enable them to save more, receive full matching 401(k) contributions where available, and make significant IRA contributions, preferably to Roth IRAs in instances where traditional IRAs are not suitable. As noted earlier, those Roth IRA balances will not reduce their aid eligibility, yet the principal amounts will be available for withdrawal without taxes or penalties as supplements for burdensome loan payments that might otherwise be defaulted on. (For more insight, read The Beauty Of Budgeting and Six Months To A Better Budget.)
Meanwhile, the untouched earnings on their Roth IRA investments will continue to grow and, combined with 401(k) and other retirement savings, will give them a good start toward a retirement nest egg. Even though 529 plans allow individuals to contribute more than the amounts permitted in 401(k) plans and Roth IRAs, they make little sense for these families because they will likely not need 529 saving amounts to pay for college. Therefore, if they can find the financial resources to save enough to fund more than is required to receive 401(k) matching contributions and fund their Roth IRAs, choosing to fund a 529 plan instead is not worth the risk that their kids decide against going to college, which could cause the 529 earnings to be taxable."