Too often, parents who have not saved enough to cover the expense end up making a last-resort choice that will impact them decades into the future -- raiding their retirement savings to send their children to college.
"Parents do this because they love their children, and they see it sequentially: College now, retire later," said
"Oftentimes those kinds of decisions are not made based on facts and projections. They are made based on emotional reactions. And that's wrong. It's always wrong to make financial decisions emotionally."
At a time when many parents between ages 40 and 60 should be increasing their retirement savings, a recent report by
The number increased from 17 percent in 2013.
"If people are using their retirement money for college, we want to get the message out that there are alternatives," Ms. O'Malley said, referring to 529 savings plans and Education Savings Accounts, also known as Coverdell IRAs. These accounts are specifically designed for college savings and also come with certain federal and state tax advantages.
While parents may want to ease the burden of debt for their children by making painful sacrifices, financial advisers say parents must be careful about jeopardizing their financial future. Children have a better chance of fending for themselves financially because they have time on their side.
"Unless the accumulated retirement savings are clearly more than the person is ever going to need, I generally advise against using retirement savings to pay for a child's college education," said
Parents withdrew an average of
When parents take out loans from a company 401(k) to fund college, the loans must be repaid in five years, and if the parent leaves the job before the loan is repaid, the entire loan balance becomes due. Loans that aren't repaid within 60 days of leaving a job are consider taxable withdrawals. The loan then is taxed as income and a 10 percent early withdrawal fee is added to Uncle Sam's bill.
Hardship withdrawals from 401(k) plans are allowed for higher education. These withdrawals do not have to be repaid, but they permanently reduce the retirement account balance. Early IRA withdrawals also are allowed for college expenses; however, regular income tax is still due on traditional IRA withdrawals and distributions from an IRA could reduce a child's eligibility for financial aid.
"The first thing that has to be done is projections from whatever point you are standing," he said. "Is this freshman year in high school, where you have four years left? Is this senior year in high school and you really don't have any years left?"
You may need third-party input to get the right projects done so you know what the right numbers are as opposed to knee-jerk emotional decisions on how much you should put away,
"And beyond that, if your debts are under control, maybe you can contribute another
"If you know what the numbers are for your retirement security and you know what the numbers are for college, then you can make discriminatory judgments as to cash flow."
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