Saving for your child’s education is a noble cause. That said, it’s not so noble if it puts your retirement at risk.
“Putting a lot of money into a college fund isn’t going to help if your retirement savings suffer as a result,” said Sally Brandon, vice president of client services at Rebalance IRA. “Your future student can take out loans, apply for grants and win scholarships that offset the costs of higher education. You, on the other hand, can’t borrow to finance your retirement. In fact, borrowing against your 401k or making early withdrawals from an IRA should be a last resort because you’ll take a big tax hit.”
If the thought of not helping your child get through school isn’t an option, consider making a compromise — one that won’t cost you your retirement. “Tell your children that you’re going to pay a portion of the cost of education,” said Brandon. “Set a budget for what you can afford, and if you have extra money after putting away what you need for retirement that month or year, so much the better.”
