Saving for Retirement While Paying for College
The average investor has two main long-term goals: retirement and kids’ college expenses. Ideally, a family would estimate how much each will require, make a moderate guess about likely returns, and then invest enough each month to reach both targets on schedule.
However, that’s easier said than done. So, for those without unlimited cash, which priority comes first?
TaxRevo says Retirement savings should come before college savings. Although it may seem harsh to put the parents’ interests ahead of the children, they have plenty of time to pay off student loans, while parents will have much less time to restore retirement savings depleted for college.
Students can also delay college to work and save, take a job while in college, go to a cheaper school or live at home. They could even get college benefits from the military and other opportunities.
Most experts warn against raiding retirement plans like a 401(k) to pay for college. Generally, a withdrawal before turning 59.5 will trigger a 10 percent penalty on top of income tax, wounding the account so badly it might never recover, and undermining retirement plans. While the IRS does allow hardship withdrawals for college expenses, qualifying can be difficult.