The A&D Professional’s Guide to The Big 3: Balancing Your 401(k), 529 Plans, and Childcare Costs
By Christopher J. Edwards
If you are a mid-career engineer at a major Prime Contractor, you likely earn a salary that puts you in the top 10% of households in America.
So why does it feel like you are living paycheck to paycheck?
Welcome to the Triple Squeeze.
For many of my clients in San Diego, this is the financial reality of your 30s:
- The Past: You are still paying off student loans.
- The Present: You are paying $2,500–$3,500 per month for daycare per child.
- The Future: You are trying to maximize your 401(k) and save for your kid’s college via a 529 Plan.
When you add a San Diego mortgage to that mix, the math often breaks. You have high income but zero liquidity.
The anxiety I hear most often is: I know I should be saving for college, but I'm barely covering daycare. Am I failing my kids?
The answer is No. You are just in a specific, expensive season of life. Here is a framework for prioritizing The Big 3 without going broke.
The Non-Negotiable: Taming the Daycare Beast
Childcare is likely your largest expense after your mortgage. While you likely cannot negotiate the tuition at your local Montessori, you can optimize how you pay for it.
The Tool: The Dependent Care FSA.
Most aerospace employers offer this benefit during Open Enrollment. It allows you to set aside up to $5,000 per year per household pre-tax to pay for qualified childcare.
The Math: If your combined marginal tax rate is roughly 40% (Federal + CA), running $5,000 through a DC-FSA saves you approximately $2,000 per year in taxes.
Consideration: If you have kids in daycare and aren't utilizing this benefit, you may be missing out on significant tax savings. Check your benefits portal today.
The Retirement Anchor: The 401(k) Match
When cash flow gets tight, the temptation to pause retirement contributions is strong.
The General Guideline: Aim to prioritize the Employer Match.
If your company matches 4% or 6%, that is an immediate 100% return on your capital. Few, if any, market investments can compete with that efficiency.
However, do you need to max out the full IRS limit if you are drowning in daycare bills?
The Strategy: It is often acceptable to temporarily dial back 401(k) contributions to the Match Only level during the heavy daycare years.
The Trade-off: You lose some tax deduction today to gain critical cash flow solvency. Once the kids enter public Kindergarten, that Daycare Cash becomes Catch-Up Cash, and you can ramp contributions back up.
The Third Rail: The 529 College Savings Plan
This is the guilt trap. You see peers dumping money into 529 plans and feel like you are falling behind.
Here is the hard truth of financial planning: You can borrow for college. You cannot borrow for retirement.
The Hierarchy of Cash Flow:
- Current Solvency: Rent/Mortgage, Food, Daycare.
- Risk Management: Insurance, Emergency Fund.
- Retirement: 401(k) up to the Match.
- Debt Reduction: High-interest credit cards.
- Retirement: Maxing out 401(k) / Roth IRA.
- College: 529 Plans.
Notice where College falls? Last.
The Oxygen Mask Protocol:
If you prioritize your kid’s college fund over your own retirement, you risk becoming a financial burden to them in your 80s. The greatest gift you can give your children is your own financial independence so they never have to support you.
The Start Small Tactic:
If you want to start a 529 just to get the clock running, that’s fine. Open one and contribute $50 a month.
Why: It builds the habit. It allows grandparents to contribute. But do not stress about fully funding Ivy League tuition while you are still paying for diapers.
Summary: It Is Just a Season
If you have two kids in daycare, you are likely spending $50,000+ per year on care. That is a Ferrari payment.
The Light at the End of the Tunnel: When your youngest child enters Kindergarten, you effectively get a $25,000 to $50,000 annual raise.
The Trap: Most people let Lifestyle Creep eat that raise.
The Plan: When that day comes, we aim to immediately redirect that Daycare Cash into your 401(k) catch-up and 529 superfunding.
Until then? Survive the squeeze. Get your match. Use the FSA. And don't feel guilty about the 529.
If you need help building a cash flow model that balances these competing priorities, let’s map it out in a Launch Pad session.