This week, I’m talking about how to pay for your kid’s college and save for retirement at the same time. Today, I’m talking about how to ruin your retirement by paying for college.
Research suggests that 30-40% of parents will tap into their retirement accounts to pay for their kid’s college.
And unfortunately, the rules for retirement accounts make it pretty easy to do just that. You can take out a loan from your 401k, and penalty-free withdrawals from your IRA and Roth IRA in many cases to pay for college.
But taking money out of your retirement accounts to pay for your kids’ college is never a good idea. Period.
Why? Well, not only do you decrease your retirement nest egg permanently, but you also miss out on the future growth on whatever amount you withdraw from your account. Even a withdrawal as small as $10,000 or $20,000 from your retirement accounts can mean a reduction to your retirement nest egg by 6 figures in retirement.
So what are your options then? As I’ve talked about earlier this week, keeping your options open and exploring all alternatives - community college, having your kids work part time and live at home to help pay for school and keep costs low, exhausting all scholarship and grant opportunities - anything to help ease the burden and reduce the need for student loans, so you can continue to save for retirement in your last working years while your kids are in school, and definitely avoid touching your retirement accounts to help pay for college.
That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip.
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