<p>I really do not know a lot when it comes to the world of finance so you'll have to forgive me, but is it pretty bad if your parents have to draw money out of their 401k savings plan just to help you pay for college? Because isn't that money specifically reserved for your parent's retirement? </p>
<p>I ask this because a few months ago, one of my best friends got accepted into UCLA, his ultimate dream school. I was so happy for him, and was even more pleased when he told me his family was luckily able to afford it, despite the pricey tuition. But a few days ago, I heard that his mom would have to take money out of her 401k in order to help him attend UCLA. </p>
<p>Is it just me, or is that pretty much something that you should never do unless it's a drastic emergency? I feel a bad vibe that they have to resort to something like this, but his parents seemed so desperate to send him to a good school such as UCLA, so I don't even know what to do.</p>
<p>We withdrew money from our 401k to build our house in 1995. I knew we would be penalized, but I was shocked at the amount we had to pay. I would not do it again.</p>
<p>It’s something that I’m very thankful to have avoided, but obviously I don’t know enough about your friend’s folks to know why they made that decision and what other options they turned down.</p>
<p>There are some “safe harbor” hardship withdrawal rules that may apply under these circumstances. The parent should check with the plan administrator for details. Here is a link to some general information: [401k</a> Hardship Withdrawal](<a href=“http://www.money-zine.com/Financial-Planning/Retirement/401k-Hardship-Withdrawal/]401k”>http://www.money-zine.com/Financial-Planning/Retirement/401k-Hardship-Withdrawal/)</p>
<p>It really depends on the particular situation, but, in general, retirement funds should be retained as such. But some folks do put away money in 401K plans when there is an employer match situation and as a means of forced savings with the intent of using it for their children’s college. Where I get jumpy about folks taking out their 401K funds is when they do so without a good understanding of the ramifications of doing this. Are they going to get hit with the 10% excise tax as well as having to pay taxes on the withdrawal? If the student is on financial aid of sorts, has the impact on next year’s numbers been calculated and taken into account? </p>
<p>Perhaps, the parent can borrow from the 401K. That would be preferable.</p>