Paying for college is not your only financial concern. Providing for your own retirement can be even more important, especially since you won’t be eligible for grants, scholarships, or federally guaranteed loans when you leave the workforce.
Though it would be ideal for college and retirement to be part of the same financial plan, you should still expect some trade-offs as you try to balance these goals. You may have to work longer than you would like, or your children may have to borrow more money than they would like. The key takeaway is that it is possible to meet both major financial responsibilities.
Keep these facts in mind when thinking about retirement and college savings:
Most advisers agree that you should take full advantage of special retirement accounts because they offer special tax advantages, and, in some cases, matching contributions from your employer.
Life insurance, annuities, and assets in retirement accounts will not affect your child’s prospects for federal financial aid (unless you actually take distributions from them during the college years). If your child is earning a small amount from working, a Roth IRA can be a great way to invest unspent income.
IRAs can even be a secondary source of college funding. Tax law permits you to tap your traditional or Roth IRA for qualified college costs without incurring the 10 percent penalty for distributions before age 59 1/2. Income tax may apply, however.
Except in unusual circumstances, your 401(k) is less accessible for college. You might be able to borrow from your 401(k), but any money borrowed will have to be paid back in short order.
Just remember that using any of your retirement money to pay for education costs means it won’t be there for your own retirement expenses. You probably don’t want to support your children through college only to risk becoming a burden to them in your later years.