When we start a savings plan for a new client, a very common question that comes up in the conversation is “Should I be saving for my kiddo’s college fund or my retirement?” Some people believe in putting their kid’s education at the top of the list, while others want their kids to be responsible for their own education funding.
There are a lot of factors that affect how clients feel about college funding. Many times it depends on how much assistance they received from their parents. After having this discussion with clients, most feel that retirement should be put ahead of college funding.
A few thoughts on why we advise saving for retirement ahead of college funding:
- A wide variety of loans are available for college students. There are no loans to fund your retirement.
- You can always pay off a loan for your child when you retire if you have the extra funding, but it’s unlikely that your kid will help finance your retirement event if you give them a paid for education.
- Some parents feel like it’s good for the child to have “skin in the game” when it comes to showing up for those EARLY 8 a.m. classes.
- If you have a retirement surplus, you can use those assets to help fund college expenses*. However, you may be penalized for using college assets for retirement funding.
- Your future college student may qualify for grants or scholarships. They may also find funding assistance depending on their academic path or career choice after college (TEACH Grant for example, click here for more info)
- Technology is changing the college experience, and higher education as we know it may change and possibly make it less expensive for future generations.
Other resources for college funding options:
Federal Student Aid Website – .org site with tons of info and resources
College Savings 101 – USNews.com resource page if you want to look at college savings options.
If your retirement plan is on track, there is nothing wrong with funding your children’s education, just make sure you don’t undershoot your retirement. Not sure if you are on track or not? We can help. Just fill out the form on the top right side of this page. You can also read a previous article on retirement savings by clicking here
Have questions about college funding options? Shoot me an email at brian.ruff@lpl.com.
*Note that withdrawals from certain retirement accounts may be subject to income taxes, and unless certain requirements are met, a 10% penalty tax may apply.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual, nor intended as tax advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.