ALL>>Most people want to help their children pay for a quality college education, but it can be difficult to balance personal financial goals and funding your kids' educational aspirations. When retirement savings are sacrificed for college costs, it can be a disservice to the entire family.
To help guide you in determining the best way to pay for your kids' college while still funding your retirement savings, personal finance expert and host of the So Money podcast Farnoosh Torabi offers seven smart tips.
Tip 1: Don't put retirement on the back burner.
While funding your children's college education is important, your retirement savings should take priority. Strive to contribute 10 to 15 percent of your take-home pay toward retirement savings. The reality is college is four years and retirement can be 30+ years. Plus, there's no scholarship for retirement like there is for college!
Tip 2: Take the free money.
If your workplace retirement plan comes with a match, take it. Contribute the minimum to receive your employer match. At the end of the day, it's free money and that's the best kind.
Tip 3: Involve your children in the college cost discussion.
College is expensive, so make sure you're discussing with your kids overall costs and what you're willing to contribute. Have them help research financial aid and scholarship opportunities, too. Remember, you want to find a school that's the best fit - so don't let the initial "sticker price" scare your children from applying. Some private colleges may give the best aid packages, but other times they may not. Don't make assumptions and always keep your options open. The goal is to find the college with the best value.
Tip 4: Don't take on more than you can afford.
While involving your children in the discussion, it's also important to make sure you're not setting them up for failure when they graduate. As they research student loan possibilities, make sure they'll be able to comfortably afford payments once they graduate, and that they're not taking on too much debt.
An easy way to start researching together is to visit College Ave Student Loans and use the configure-it-out tool. Answer a short series of questions regarding how much you'll borrow, how many years of schooling are left, whether you want to make payments during school or not, etc. This shows your child what repayment will look like under each option so you can both be clear on the details and agree on a game plan.
Tip 5: Consider the college savings plan that's best for you.
Consider opening a 529 that allows flexible spending toward higher education. Should your child choose to forgo traditional college education or not require the funds set aside, you can easily change the beneficiary to another child or relative.
If you're skeptical of a 529, consider a Roth IRA if your income limits allow. Although typically used for retirement, the Roth IRA has an exception where you can withdraw your contributions from the account at any time tax- and penalty-free for qualified education expenses. The remaining money can be collected in your retirement.