It’s official. Parents are dipping into their retirement funds to pay for their child’s college education. According to Sallie Mae and the Gallup poling organization, a whooping 24 percent of parents plan to pay for college by dipping into their retirement funds. This includes pension plans, IRAs and 401(k)s.
If you’re one of these parents, THINK about what you’re doing before delving into that retirement account. Firstly, talk to a highly reputable financial adviser and accountant. Here at White Picket College, we recommend not to dip into retirement funds. Why not? Here is a list of our reasons:
- You will accrue HUGE tax penalties. Whenever you dip into a retirement fund, the monetary penalties can be staggering. They can literally bring a person down to their knees financially.
- Don’t believe us? Craig Averill, a retirement planning executive with Bank of America, says those who take cash from 401(k)s who are under 59 1/2 years old, will receive a 10 percent penalty.
- Your financial aid will decrease by as much as 47 percent because this money will be looked at as adjusted gross income in the financial aid formula, according to Mark Kantrowitz, leading college financial aid expert.
All signs point to “no” for parents who want to take out of their retirement funds. In fact, here at White Picket College, we have two articles on why you should use retirement savings to your advantage to receive more financial aid. Take a look:
So, parents, make sure you know all the facts before dipping into your retirement savings. You could be potentially setting yourself (and your child) up for financial failure. There’s nothing wrong with having all the facts first. Do your homework and then decide if dipping into your retirement fund is the best choice for you and your family.
~ the WPC team