If you have kids like I do, I’m sure you have asked yourself this question a time or 100, do I save for my kid’s college OR do I save for retirement? These life decisions can be difficult and stressful, but they don’t have to be. We all want the best for our kids. It’s our human nature to want to provide the same or better lifestyle than we had when we were kids. There is nothing wrong with this desire; we just shouldn’t let this desire overtake our personal long term financial and life well-being. Having proper boundaries and educating ourselves on these topics is our best approach. Let’s talk a little about each of the different accounts.
529 (Education Fund):
A 529 account can only be used for education purposes. These accounts grow tax deferred, similar to some retirement accounts. This means the funds are invested in the stock market and can fluctuate just like retirement accounts do. There may also be some state tax advantages to these accounts depending on where you live. To see if there would be possible tax advantages for you, you will need to engage with your tax accountant.
Retirement account(s):
A 401k, or other retirement accounts (i.e. IRA accounts), can sometimes be used to pay for education expenses too. Sometimes education withdrawals can be done without penalty as well. If being pulled out after age 59 ½ you are free to use your funds however you wish. This should be monitored though because you shouldn’t jeopardize your retirement well-being just to put your kids through college.
As parents please don’t feel bad if you aren’t in position to help pay for your kids college, that is far from the point we are trying to make! What we are saying is we should never burden ourselves to pay for kid’s college education. There are many ways our kids can help with the college expense. They can work part-time either on or off campus, work summers, get small student loans (as necessary), become an RA (resident assistant), attend a local community college and transfer once their core classes are done, etc… Having them put a little skin in the game will only make them stronger and appreciate their hard earned degree that much more! Our main focus should be teaching them how to properly handle money and why debt holds us back from living our fullest life.
When it comes to making decisions linked to a 401k or 529, a financial coach would be a great asset to utilize. A financial coach will ensure you are provided with the proper information to make your best decision. If you want specific advice on different IRA options, that is when you will need a good financial advisor. This is how financial coaching and a financial advisors work hand in hand. They ensure you have the most relevant information to make your best financial decisions.
Here is a good link where you can find more information regarding 529’s and how they work:
https://www.fidelity.com/529-plans/what-is-a-529-plan
Here is a link to another blog that discusses college education in more detail, and also includes links to other sites for scholarships, grants and other resources: https://www.daveramsey.com/blog/pay-for-college-without-student-loans
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Great information!