It can be done. All across America, families are meeting a mighty
financial challenge – the challenge of paying college costs with retirement
potentially on the horizon. How do they do it? They go about it consistently;
they also get creative.
First, make sure the priorities are in the right order. Strange as it may
sound, your retirement may need to take precedence over your child’s college
Think about it. Your son or daughter might qualify for student loans or
financial aid. By the time they are 30 or 35, they will have the earnings
potential to pay those loans back. Do you see any ads out there for “retirement
loans” or “retirement aid”? For most, it is much harder to earn money at age 65
than at age 35. Because of this, many choose to allow the younger generation to
assume the debt.
The following are some short-term and long-term ideas you may want to consider
if you have college costs on your mind:
Save for college the DCA way. While dollar-cost averaging is a useful way
to build retirement savings, its merit often goes unrecognized when it comes to
saving for higher education. If you could put $40 a month even in a basic
savings account with a tiny interest rate, over 10 years that is approaching
$5,000. That’s nothing to sneeze at, and will certainly help out. Move the money
from a checking account each month into a savings account, or …
Consider a tax-advantaged college savings plan. Contribute to a 529 plan,
which features tax-advantaged growth and tax-free withdrawals when the withdrawn
funds are used to pay qualified education costs. Not all 529 plans are the same
– in fact, some of them will even provide a small cash “match” or “sign-up”
bonus when you start your plan. Some 529 plans are even “prepaid” – that means
you may be able to secure future tuition rates at current prices, usually at
in-state public colleges. Another advantage of the prepaid plans – they are
often guaranteed by the state.1,2
Exploit your credit card. No, don’t pay for college with it … well, at
least not directly. Some credit cards give you a cash-back rewards option. You
may as well put the rewards toward college. Some of the major banks let you do
this and so do online shopping websites such as Upromise.
Keep your income as low as possible in the base income year. That is the
calendar year that starts as your child is in the middle of his or her junior
year in high school. That is the year when college financial aid departments
start to look at a family’s earned and received income. If you can avoid taking
capital gains or a distribution from a 401(k) or 403(b) in that year, that will
keep your taxable income low. Will Roth IRA conversions raise eyebrows? Yes,
However, don’t stop contributing to your own retirement savings accounts, and
feel free to pay off consumer debts with the money from your savings and
checking accounts – the assets in these accounts aren’t used in financial aid
Let the college know if your financial situation has changed. Has the
value of your home fallen? Is your business netting you far less than it once
did? Financial aid departments should be willing to review these developments
and may be able to adjust aid for your student accordingly.
Make it a family affair. In some cultures, it is common for all members
of a family to pitch in on the down payment or mortgage payments for a home.
Consider this strategy as your family saves for college. Close friends and
family members may be willing (or even excited) to make ongoing contributions to
a college savings plan for your child, and/or an annual “birthday” contribution.
They may find giving such a gift to be much more meaningful and fulfilling than
a mere toy or item of clothing.
In short, hunting for every scholarship or alumni connection you can and finding
a great school at a reasonable price – that’s important. But it may be just as
useful (if not more) to be both creative and consistent as you save for college.
While it has always been a challenge, by putting some thought into it, most
families and students can find ways to respond.
These are the views of Peter Montoya Inc., not the named
Representative nor Broker/Dealer, and should not be construed as investment
advice. Neither the named Representative nor Broker/Dealer gives tax or legal
advice. All information is believed to be from reliable sources; however, we
make no representation as to its completeness or accuracy. The publisher is not
engaged in rendering legal, accounting or other professional services. If other
expert assistance is needed, the reader is advised to engage the services of a
competent professional. Please consult your Financial Advisor for further