<p>Suppose someone with a young child is trying to plan ahead for their child's college years. Their employer offers a substantial match on retirement savings, so they want to max that out, but if they do so, they won't be able to also save for their child's education. However, the retirement plan does offer an option to borrow from the amassed savings. Would it be a horrible idea to max out the retirement savings and then plan to take a loan against it for college? I hear everyone saying that it's a horrible idea to borrow from your retirement savings and "risk your retirement" but how is that really any worse than having put less into the retirement fund in the first place in order to also save for college?</p>
<p>It really is a Catch-22, isn’t it? I think the correct answer is to save for retirement first, as you can borrow for college. But, I don’t know that borrowing against retirement savings is the best plan - I just mean borrowing in general. If you have a 401(k) at work and later you want to borrow against it for college expenses - you can do this - but the risk you take is that if you lose your job - the loan is immediately due and payable. If you can’t repay it - it is treated as an early withdrawal and you have to pay taxes on the amount plus the penalties. So - there is some risk involved there.</p>
<p>I also think that in terms of getting financial aid - money in retirement accounts is not counted - savings you have accumulated is counted. So - another reason to focus more heavily on saving for retirement.</p>
<p>rockville, it is risky to borrow from a 401(k) that’s true. I was thinking that you could borrow from the 401(k) anyhow, with the “plan” that if you had to pay it back you could then borrow from another source, but of course after losing your job is a pretty tough time to try to get another loan ;-)</p>
<p>I guess it would be important to understand what the rules and risks are for borrowing form a retirement plan if one were planning to do most of their savings/asset accumulation there.</p>
<p>We saved for retirement ONLY. And we would NOT have borrowed against our retirement accounts. We are happy with this strategy. We can pay back loans out of our retirement income which is higher because we put money into that account.</p>
<p>Went round and round with this one when kids were younger, ended up only putting money in 401K at the time. Unless our income had increased substantially we could not do both, it seems wrong to choose between these and perhaps in the future there will be better programs to allow parents to save for education more easily, but as it is, if your income is on the middle income to low side saving for retirement seems to me to be the best you can do.</p>
<p>thumper1, did you end up taking loans, and if so what type?</p>
<p>Pay out of current income at 10 months out of year, using Tuition Managment Systems or similiar setup, to the college.</p>
<p>Well we took more unorthodox approach but one that I will recommend to my kids when the time comes. My husband and I both worked and we banked one salary and lived on the other. The salary we banked we split between funding retirement to the allowable maximum and the rest went to investments that could be tapped for college. Things went up and down as we all know, but it did allow us to accelerate our savings. We didn’t have as much “fun” travels as some of our friends, don’t have quite as big of house or as many toys but it’s all good.</p>
<p>Our kids took the Stafford loans, and we used about $10,000 in HELOC money for them (needed to do that the year BOTH were in undergrad school…yikes). I work full time and it’s no secret on this forum that my WHOLE take home pay…every cent of it…went to college expenses from June 2003 to May 2010…and one year in there had two kids in college. I worked FULL TIME to pay college bills and nothing else. I did continue to contribute the max to my retirement as well. DH’s income paid the rest of our bills.</p>
<p>momofthreeboys–that’s a great strategy if one could afford it. Where we live the cost is so high, there is no way we could have lived on just one salary. Taxes and insurance alone take a huge chunk out of our income and we live modestly. Plus for many years H was self-employed so his income went up and down.</p>
<p>Saved for retirement here too. Happykid’s college budget was what we can pay out of pocket, so she is at our local CC for two years. She was awarded a tuition and fees scholarship there (possibly renewable based on GPA) which means that what would have been this year’s tuition and fees are stashed away in CDs for future use. When she transfers she will almost certainly need to take out student loans, and it will be likely that we will have to take out parent loans. Those will have to be repaid out of current income. The 401(k) is sacred. Money goes in there, but nothing will come out until Happydad retires.</p>
<p>We have saved a lot for retirement, but I can’t emphasize enough the importance of having accessible savings in case of job loss.</p>
<p>If the employer is offering a match, then putting money in the retirement fund is a no-brainer. Even if you need to borrow against the retirement savings to fund college, you’ll have doubled your initial investment by maxing out the retirement savings.</p>
<p>I agree with the above post–why throw away money your employer is offering to match by NOT taking advantage of the retirement. One thing we all have to remember is that our kids do NOT want to have to support us (as some have had to support their parents). We do no favors to our kids by not having enough saved for our retirement. We have always tried to max out retirement savings.</p>
<p>Yes, if we can afford it, we should also try to save as much as we can for our kids’ education. We all make choices–we lived as simply as we could in a state with very high cost of living so that we could save for our kids AND our retirement; we consistently strive to live well below our income.</p>
<p>We have done all we could to avoid having anyone end up with crushing debt. As has been said, it is not that bad when we & our kids look at schools offering generous merit awards, consider CC and transfer, stagger payment over 10 months with a tuition payment plan (offered at many Us), use whatever we have managed to save, have kiddos work part-time and over the summer, and then consider loans for any balance. </p>
<p>We have also had two kids both in college at the same time for 3 years–fortunately one has graduated and soon starting his great job & the other should graduate in spring 2012 (S attended 2006-2010 & D 2007-2012). It really CAN be done, with planning, prioritizing, and being realistic. (For example, my S turned down Us that did not offer significant merit aid; D was in CC for 3 semesters. Unfortunately, S also turned down a full-ride that he was not interested in that I hoped he would consider a bit more seriously.) Wow, looking back, I hadn’t realized how long the two were overlapping in college.</p>
<p>It’s much more important to let your retirement grow, as it will have to last us all a very long time and pensions are getting fewer and further between (as well as not very well funded).</p>
<p>I heard it said this way… “Financial aid and scholarships are available for college; they do not exist for retirement.” I would NEVER put our retirement savings at risk in order to fund college. We have always taken adavantage of the employer match, but even without one, saving for retirement should be, I believe, a higher priority than funding college. We are able to help our kids somewhat, and they know what that amount is. It is up to them to find/fund the difference through scholarhips, working, choosing a college that fits their budget. For instance, our D attends a nearby university and lived on campus her first year. When she looked her loan amounts after that year and how quickly interest added up, she moved home and worked hard to pay off that loan. She is now almost through Jr year and has no debt. She did not put much effort into looking for scholarships, but our son is a different story. He will attend a school farther away with more expensive tuition, but he has worked hard by keeping his grades up, doing very well on standardized tests, and applying for numerous scholarships. We are hoping that he, too, will be able to graduate with no debt. It IS possible.</p>
<p>Agree that retirement comes first for all of the reasons stated in the last few posts.</p>