Leeann: Our son will be a freshman in college next fall and will probably be going to school out of state, which we didn’t expect. We and his grandparents have put money into a 529 plan for him, but this will only cover a portion. Do you have any thoughts on paying for college and/or taking out loans?
This is the season for people to think about paying for college. Student loan debt is going through the roof in this country. If you want to pay for your student’s college, I have a few suggestions. IRAs and Roth IRAs can be used for education as well. If you and your husband are under 59, you know you can not take money out of your IRA without a penalty and will taxed on it. But if you’re taking money out for college and you have an IRA, you will still be taxed for this money but they will waive the penalty. If you have a Roth IRA, which is already tax free, you get those qualified educational expenses without taxes or penalty.
Danger: remember your priorities.
What is most important is that you and husband are prepared for retirement. You should be cautious about digging deep into your retirement plans. I know our kids are the most important thing in the world to us but you will not be doing your kids a favor by putting yourself in a bad situation. If you have to move in with your kids later on in life because you don’t have enough to live on your own, that doesn’t benefit them.
You can take out loans, yourself or your student.
Be cautious though of the level of debt you’re taking.
Be honest with your kid about how much you have saved.
Let them know what you can cover and what you can’t. Give clear boundaries.
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