When faced with the decision to fund your retirement vs. your child's education, you should pay for your retirement. There are no grants, scholarships, or loans to help pay for your retirement when you leave the workforce. While this can be difficult to deal with, understand that your child will have funding options, some of which will not have to be paid back. Your retirement is paramount.
Here are some key considerations concerning your retirement and college savings options:
- It is best for you to take advantage of your employee sponsored retirement accounts, such as 401(k), 403(b), and IRAs before funding college savings accounts. This is especially the case when your employer offers matching contributions.
- A 401(k) is less accessible for college spending than traditional college plans. While you can borrow from your 401(k) it must be paid back in a shorter period.
- Asset retirement accounts will not affect your child's federal financial aid unless you actually take distributions from it during college years.
- Life insurance or annuities will not affect your child's financial aid either.
IRAs can be a secondary source of college funding as tax laws permit you to use both traditional and Roth IRA for quality college costs without incurring the 10 percent penalty for distributions prior to age 59 ½. However, income tax may apply.