Prioritize Your Retirement
College saving can be a daunting task, especially with multiple children," says Michael Briggs, an investment adviser representative with NEXT Financial Group at Horizon Investment Management Group in Springfield, Mass. "The advice I give my clients is, when having to choose between college saving and your own retirement, always choose your own retirement first."
Parents' contributions to their own individual retirement accounts (IRAs) can be used for their children's educational expenses, but money placed in a 529 plan can't be used for non-educational purposes without paying taxes and penalties. "Just think of being on a plane – they tell you to put your own mask on first and then help the other person. The same applies when choosing where to put your funds," Briggs says.
Another benefit to prioritizing retirement savings over education savings is that money in qualified retirement accounts isn't counted as an asset on the Free Application for Federal Student Aid (FAFSA). That means they don't count toward your family's expected financial contribution. Money in 529 plans in parents' or students' names is counted toward your family's expected financial contribution and can reduce financial aid by as much as 5.64%.
Sharon Marchisello, author of the personal finance e-book Live Cheaply, Be Happy, Grow Wealthy, agrees that funding retirement should be higher on your list than sending the kids to college. Your kids have other options for paying for college – including scholarships, part-time work and student loans – but you won't be able to borrow your way through retirement. "You help your children more by being self-sufficient, so you don't have to ask for their support in your old age," she says.
Taken from Investopedia Website, article updated Nov. 25, 2018