Guest Author Todd Schwendiman
“My wife and I are getting ready to send our son to college. Unfortunately, we have not saved enough in our college 529 plan. Can we take out money from our retirement plans without penalty, and if so, should we do this? Thank you.” Joe
It’s back to school time and parents across the country are trying to figure out how to pay for the cost of college education for their kids. Costs for education continue to go up, and many parents do not have enough saved in their specific college funds to pay for all of it. So, where is the best place to get the money? In a lot of cases, the only other place people have money saved is retirement accounts. So, as Joe asks, can you use this money for college, and if so, is it a smart move to do so?
The answer to both questions is maybe. There is an exception to the 10% early distribution penalty for higher education expenses out of some types of retirement accounts, but not for others. Even for those plans that do allow it, there are some strict rules and guidelines that must be followed in order to qualify for the penalty exception.
So, should you do this? Well, again, the answer is maybe, as it depends on a lot of factors. Taking money out of retirement plan funds to pay for college will obviously hurt your retirement plan. The key question is “Will it hurt less than the cost of a loan?” As a smart man once said, “You can borrow to finance college; you cannot borrow to finance your retirement.” This statement is so true. So, if you are going to use your retirement funds to finance an education, you have to make sure you do it properly.
Todd Schwendiman is the founder and principal owner of Heritage Solutions Group, which was founded in 2000 to help residents along the Wasatch Front find peace of mind when planning their retirement. Dallin Schwendiman joined the firm in 2014 and is the General Agent for Medicare Solutions. Their mission is to help individuals & families resolve concerns in retirement.