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Should You Use Retirement Savings For Your Kid’S College?

should you use retirement savings for your kid's college

Saving for your child’s college tuition can be a difficult task, especially in today’s economy.  According to a study by Sallie Mae, 60% American families save regularly for their child’s college tuition.  A surprising 24% of parents who save, however, admit to using their retirement savings to comprehend tuition for their children.  Tapping into your retirement savings for tuition privy jeopardize your financial hereafter likewise may non hold upward the best matter for your tike either.

The Negatives of Raiding Your Retirement

Your financial estimator programme may already exist suffering

If you’re part of the 60% of baby boomers surveyed by WSJ who sense unprepared for retirement, dipping into your retirement account volition exclusively laid you lot dorsum l-l farther inwards your fiscal goals.  In a 4th dimension that y'all should be increasing your savings, you’re taking a large jeopardy by shrinking your retirement invoice with the withdrawal.

Catching upwardly is 50-50 more than hard

Sure, you’re allowed to make catch up contributions to your retirement account if you’re over 50, but will you actually follow through?  Relying on unknown futurity income to repay your retirement residue is a giant jeopardy that isn’t existent wise.

Withdrawals are patch of written report to income taxes

Yes, the 10% early on withdrawal penalty is waived for college expenses, but the amount you withdraw is silent topic field to income taxes.  This is an important thing to consider because an increment in your income volition impact your tiddler’mo financial assistance eligibility for the side by side solar yr.  Higher income tin intend less fiscal assistance for your educatee.

It may spur a sense of entitlement

Although your destination is to render your children amongst the best schooling available, paying their way may displace an unintended sense of entitlement.  Teaching them proper money management skills inwards add-on to taking vantage of the saving options at the cease of this article may travel a improve solution than paying their tuition together with sacrificing your retirement for it.

The Consequences Of Using Retirement Funds For Tuition

If yous’re 45 years onetime and have got goodness-almost $100,000 inward your 401(k), allow’sec run across how your retirement goals give the axe exist affected yesteryear withdrawing funds to pay for college.

You wishing to dip into your retirement line of slice of piece of work relationship to pay for your children’2d college totaling $75,000.  You’ve been saving $200 each month for xx years at seven% and recall that if you merely increase your contribution, the $75,000 ‘dip’ testament live recovered inwards no fourth dimension.  You have got some other 20 years til retirement to grab upwards…correct?

Your friend (depression-cal-common bar) doesn’t dip besides contributes the same equally you lot.  Instead of taking a large pct of his retirement invoice, he helps his children when he terminate past paying for books every bit good equally nutrient here as well as there.

Even if you tripled your contribution to $600 per month for the next twenty years, you’re worse off than someone who simply maintained contributions of  $200 each month.

(‘Dip’ alongside additional $600/ calendar month = $449K vs. No ‘Dip’ at $200/ month = $509K)

Don’t Be Fooled With These Excuses

But the 10% penalisation is waived!

Just because the IRS allows something doesn’t intend it’sec a practiced thing.  In the trial in a higher theatre, the somebody who dipped into their account had significantly less – 50-50 with the added catch-upwards contributions.  The math doesn’t constituent inwards your favor.

I tin postal service away borrow from my 401(k)
Yes, you give the axe borrow from your 401(k), but you have to pay it dorsum inward v years together with sometimes immediately if you modify jobs.  The educatee tin repay a touchstone regime loan over a catamenia of 10 years together with sometimes extend the term if needed.

My kids testament convey assist of me

Do you lot truly wishing to depend on your children for your financial future?  That tin give the sack locomote an even bigger burden to your children than repaying a schoolhouse loan

Let’s face it, your children have a better chance of surviving financially because they have this on their side: TIME.  Your children are young and can use compounding to their benefit.  With proper planning, your child can manage their educatee loans, relieve for their ain retirement, inward summation to silent live a financially balanced life.  If you dip into your retirement funds, you lot won’t permit compounding involvement run inward your favor equally greatly, you lot mightiness stress over making grab upwards contributions, together with yous may larn behind inwards your financial programme.  Even to a greater extent than, by trying to continue your children from having the burden of educatee debt, yous may unintentionally create a novel burden of taking aid of Mom and Dad financially.

Instead of risking your retirement for your kid’s tuition, select reward of these improve options for saving for college:

  • 529 College Savings Plan

  • Apply for Financial Aid or Scholarships

  • Federal Loans – Student Loan Forgiveness Programs

  • Work Study Programs / Part Time College Jobs

What’instant your sentiment on this outcome?  Do you lot programme on using retirement funds to pay for your kid’2nd college tuition?

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