I don’t know if the people who responded here or are even on CC are “average.” It sounds like most were able to save a large chunk of money for college. Most people that I know weren’t able to do this, including us. When we had kids, we decided that I would stay home to raise them so we lived on my husband’s nice, but not outstanding, salary. When they started school, we felt that they were better off in our local K-8 catholic school so with 3 kids, we had 12 years of reasonable tuition. We live in a smaller house, drove old cars and were able to save money for retirement but not for college. When my oldest was going off, we told him that we could pay $10,000 per year (my part-time earnings), which is what we offered for all 3. We were fortunate that they earned scholarships so hopefully they all will get out of college debt-free. I am surprised when I read here on CC how many people were able to save (and the amount.)
Being a housewife is certainly not average either. That said, we put most away in retirement. Borrowing to pay for college then we have the choice to dip borrow from borrow from 401k to pay it off then pay ourselves back, we could pay it off over time or let our kids pay it. We’ll probably do a combination of the 3. The nice thing is that we exceeded our retirement goals so borrowing on it doesn’t hurt us and we had kids youngso we have at least 20 working years after college to sort it all out.
I thinking having time is more important than money.
I know couples that will be paying for college when they’re 65 years old. Tha doesn’t leave much wiggle room for the unexpected.
If a state 529 plan with decent investment options is available, then saving at least some college funds there makes much more sense than saving in retirement plans and then borrowing/paying back. There is no tax, ever, on the returns in 529 plans and if you start early, the returns can easily exceed the contributions. There is also the state tax savings in the contribution year.
I can, from painful experience, echo the previous posts to the effect that retirement withdrawals are taxed as ordinary income. DH is old enough that he’s been required to make withdrawals for a few years now (even though he is still working). Fortunately, most of his accounts (from current employer and previous employers under the same account number) are sheltered from this, but he still has to withdraw from some accounts. It’s painful because the money is not needed now, in our peak earning years. We actually just transfer the investments to a non-retirement account, but we have to pay a large fraction of the amount in taxes.
You can withdraw from your IRA at anytime with no penalties for any education expenses. You just have to make sure you can show proof that you paid an institution. Yes you have to pay ordinary tax but you’d have to anyway if you saved it and put it in the bank. Same difference. It’s probably smarter to put it to an IRA just in case you don’t need it later. You never know but that’s a nice option. No penalties!!
“- Nope. The fact is that vast majority of those who qualify opt for some IVY / Elite where they have a very slim chance of getting Merit.” - Yes, I do wholeheartedly agree with that students who would qualify for Ivy (or Ivy-ish) schools (no merit scholarships) often qualify for big scholarships elsewhere. DS had that situation.
My point was that when the kiddo is 2 years old and it’s time to start saving for college… you have no clue about whether they will be that caliber of a student.
Our goal was to save enough for state schools, and we told our kids from starting in middle school that if they set their sights on private/pricey schools they would need to earn scholarships to make it happen.
Yes, you can withdraw from IRAs for educational expenses, but it can have the unanticipated effect of increasing EFC the next year, then you may get less aid, resulting in the need to withdraw even more.
I think it’s a bad idea to plan to withdraw from any retirement fund to pay for your kids’ education. Yes, you may put money into an IRA as a contingency, but it’s best in the long run to regard of your 401k’s, IRA’s, and 457b’s as essential to a “pay yourself first” approach. Always contribute to those accounts before spending or saving for anything else.
There will come a time when you want to retire. You should try to retire with adequate sources of income and no debt. Saving for the kids’ college education is an additional reason to save, as well as to be frugal in your own spending habits. But don’t short-change your future in the process.
In my case, since I did not have an employer pension to count on, I followed the standard advice to save/invest a minimum of 15% of my gross salary (“pre-tax”) to my 401k’s and other “tax qualified” funds. Do this for enough years, and couple it with Social Security, and you can reasonably expect to maintain your standard of living in retirement. Once the kids graduated, I socked away even more money in these accounts. I wish I had started earlier, to benefit more from the effects of compounding. But it’s working out pretty well so far.
I just read a few more pages of this thread. Absolutely…if you can try to save some money for future college costs. But really…the very vast majority of college students do not have college savings accounts. They just don’t.
As I posted a long time ago, we were advised by our financial planner to maximize retirement contributions…which we did. if necessary, the two of us could have stopped retirement contributions during the college years which would have paid for college. But we didn’t need to do that.
There are many ways to go to college. Some kids work part time and go to school part time. Some kids start at a community college. Some kids commute. Many go to public universities in their own states.
Do the best you can…that is all you can do. And don’t feel guilty if you have to pay your daily bills and can’t sock away $100,000 or more per kid in college savings. Many cant do this.
About 106,000 using the 529
That’s why I saved in a Roth IRA, but only for the final year of college. The $ saved in the IRA is not counted in the assets, and if used for the final year, won’t affect the next years FAFSA
When we got married 20+ years ago the pastor said he had some advice for us. I thought he was going to say “Never go to bed angry,” or something like that. Instead he said, “Always pay cash for a car.” We haven’t been able to do that all the time, but the sentiment stuck!
We opened a 529 plan when D was 3. We knew we would be moving around a bit (subsequently lived in 4 states), and W and I had both attended private colleges. So we went with a 529 prepaid tuition plan that has 270 member colleges and universities, all privates. Both our alma maters were members, and we figured there was probably a better than even chance D would choose to attend such an institution (you get your money back if your child goes outside the plan). As it turns out, most of her apps have been to participating colleges.
For 15 years we put in an average of $250 per month, even though it was sometimes a considerable stretch due to job changes, moving, etc. Contributed $45K in total. The tuition credits are now worth roughly $66,000 (varies a bit from school to school).
Although we wish we had done more, we did what we could at the time, and we’re hoping merit money can fill in some gaps. D also has been saving $ from summer jobs and will contribute. And we set aside some separate money early on for room & board, since the plan only covers tuition and fees. We hope to avoid having to tap into retirement, if at all possible.
A couple things that may not be so clear in this post:
-You are not limited to just using a 529 plan offered by your state. If you are eligible to open a 529 plan, you can use any plan from any state. Using your own state’s plan may give you a break on your state taxes, but if that advantage is there you should weigh it against better investment options that may exist in another state’s plan.
-Saying that there is no tax, ever, on 529 returns is not accurate. There is no tax if the money is used for qualified education expenses, but there will be tax, and possibly an additional 10% penalty, assessed if the money is not used for QEE.
-As alluded to above, not all states offer tax incentives for 529 contributions. Some don’t, and most of the ones that do only offer incentives for making contributions to your own state’s plan. A few states offer a tax incentive for making contributions to any 529 plan.
As I said, max contributions to 401k made sense to us, maybe not to the rest of the country. I do not see much difference were you put X amount of money, your savings, college fund or 401k, it is still X amount of money. If you put it into college fund, then your 401k will be that much lower, it will smaller by X amount of money. We loved to max to 401k because it gave us tax advantage when we needed the most. Tax advantage also allow to save more. Actually, it is advisable to max on your 401k contributions and as far as desire to retire, I am over full retirement age, I have no desire to do so, but since we were saving max (which is more than if were saving to a regualar account), we are looking for some luxury items for our retirement (while still working).
Again, this was out plan. Which is 2 steps: insure Merit awards for UG and pay for Grad. School out of 401k. This is just an option that some may consider. It make sense in case of older parents.
BTW, since we continue contributing, our 401k did not really diminish. Again, the reason is that when you contributing, companies are also matching and you put more because of tax advantage.
Yes, I agree. We did the same thing - maxed out in our 401k’s too. Incredible tax benefits. We plan to retire in a tax friendly state (no state income tax) so when we do take the money out we will pay less taxes. However, its nice to know you can withdraw from an tIRA for education purposes without a penalty (if needed). My company allows us to roll over parts of our 401k to an IRA tax free which is really nice too which allows more investment options.
In fact Suze Orman suggested that having your immediate savings be put it into a Roth IRA. I was surprised by that but that sounds smart too. Basically you can withdraw your principal at anytime. If you dont’ need it, it will grow tax free for many generations.
I’ve read many financial planning books and they say you must invest in your retirement first and then college. You cannot easily find money while you are retired. However, you can find all sorts of ways to pay for college (merit, scholarships, loans, student jobs, grand parents, etc.).
I attribute our six-figure college savings pot to a combination of luck, financial savvy, and plain hard work. Luck factors in because our D got a nice little inheritance when she was a year old. We immediately opened a 529 with that and socked away as much as we could over the years whenever she got birthday money. That was the savvy part. Luck again played a part due to the stock market, which overall has been kind to us. The hard work comes from the 60±hour work weeks my DH puts in as a highly paid lawyer, and the generous bonuses he gets. Much of those bonuses go right into the 529s. I supplement our family income as a freelance writer.
I would love to be one of those wives who goes to the mall and blows through a couple grand, but I’m not. I wear old shoes and old jeans that I’ve had for a dozen years, because our goal is to fully fund four years of private undergrad for our kids, and despite all our efforts we’re not even there yet. Maybe in a decade or so I’ll splurge on some brand-name togs.
It’s not clear what you mean when say that you “maxed out” your 401k, @miamidap @newjersey17. It could mean (1) contribute as much as you are financially able, or (2) contribute whatever it takes to achieve the maximum match by your employer (e.g., the employer matches 0.5% for each 1% of your salary contributed, up to 6%), or (3) contribute up to the the IRS limit (which is $18,000 in 2015), or (4) contribute up to the IRS limit plus the additional “catch up” provision for those over 50 yrs old. (i.e. $18,000 plus $6000 in 2015), or (6) something else. Which is it for you?
Old jeans are the comfiest anyway. 
Many generations? A generation is 25 years, and many is a large but indefinite number. I don’t think it’s quite accurate to state that a Roth IRA can grow tax-free for many generations.
@kjcphmom
LOL! I agree. Our “circle” does not have hundreds of thousands of dollars in the bank. Most are very middle class and live modestly, but they don’t have much left over after paying bills and saving for retirement. I think the posters on CC are very far from the typical American family.
Our kids aren’t typical either. 
I am happy with the decisions we have made. Kids do NOT have to attend $50-60000/yr schools. That is a choice, not a necessity. Not saving that much money was our choice. Their attending a less expensive school is a necessity. Welcome to the real world, kiddos! My kids have all been able to pursue their desired objectives within our living yrly budget (which isn’t much!)
@Madison85 Yes, I meant to say multi-generational Roth IRA - it is totally tax free. See http://www.paytaxeslater.com/radioshow_112_ed_slott_end_of_stretch_ira.php
Or read Ed Slott’s books.