Pay for your children's college bills without sacrificing your retirement nest egg.
Middle-aged people earning middle class incomes collectively face one great challenge – paying for their children's college tuition without dipping into their 401(k). Can you afford to pay for those huge college bills and still protect your retirement funds at the same time? Well, you can – if you know how to do it right!
Overcoming the Challenge – Five Rules to Guide Your Way
Set up a 529 college savings account. Having a place to put the money can encourage you to save for your children's college education. If you are going to do it, you should consider how much aid your children will qualify for and deduct it from the total expected cost of sending them to college. You can then break down the difference and make it your annual savings goal. With a 529 plan, you can enjoy attractive tax advantages. You may even earn free bonuses for signing up.
Prioritize your 401(k). Some people may think that saving for their retirement before opening a 529 college savings plan for their children is the selfish way to go. However, if you open yourself up to the idea and give it a bit more thought, it really makes a lot of sense – especially if you do not earn enough money to max out your 401(k) and still keep your kids' 529 accounts going. Keep in mind that you cannot help your children go to college if you do not help yourself first.
Encourage friends and relatives to give college fund contributions instead of gifts. Why don't you ask close friends and relatives to give college fund contributions instead of gifts during your child's first birthday? That can be a good way to start building your child's college education fund.
Devote extra money to your children's college education. Setting aside any extra money for your children's education is another great way to build your kids' college funds. So, put all your tax refunds as well as the money you earn from side jobs and things you sell into your kids' college savings account. Remember, every little thing bit counts – a lot.
Avoid making a Roth conversion during the college years. Resist the urge to convert your pre-tax IRA assets into a Roth IRA, no matter how tempting it may be. This will inevitably show up on your aid form and affect it considerably.
Follow these simple tips and you can surely send your children to college without dipping into your retirement nest egg. Consider starting now, or you may never reach your goal!