College financial aid

[noppenbd]

I agree that you should fund your IRA and 401k first, but not because you could later borrow against the 401k or do a qualified withdrawal from the IRA. The reason you should fund the retirement plans first is because THEY ARE MORE IMPORTANT! Retirement savings should come BEFORE college savings. If you aren't adequately saving for your own retirement, you should not be saving for your kids' college education.

I agree with this, but it's possible to be saving adequately (15-20% of gross income) without maxing out IRA contributions. For instance, if you make $100K and max out your 401k, you might not be contributing to an IRA at all. Why not make the Roth or traditional IRA contribution first before contributing to a 529?

[disneysteve]

I agree with this, but it's possible to be saving adequately (15-20% of gross income) without maxing out IRA contributions. For instance, if you make $100K and max out your 401k, you might not be contributing to an IRA at all. Why not make the Roth or traditional IRA contribution first before contributing to a 529?

Makes sense. That way you'd have "extra" retirement savings (if there is such a thing) and you can choose, or not choose, to use that money toward college, plus it helps the financial aid situation. I'll buy that.

[jIM_Ohio]

I agree that you should fund your IRA and 401k first, but not because you could later borrow against the 401k or do a qualified withdrawal from the IRA. The reason you should fund the retirement plans first is because THEY ARE MORE IMPORTANT! Retirement savings should come BEFORE college savings. If you aren't adequately saving for your own retirement, you should not be saving for your kids' college education.

My pointwas the 401k and IRAs should be maxed before any college funding is even considered.

The importance of retirement is a factor.
You can use IRA expenses for education but you cannot use education IRAs for retirement- this was my point.

[simpletron]

basic strategy for maximizing financial aid is to try to get all the assets into the parents name and then put the money into retirement accounts and home equity. do any large cash purchases, you were saving up for, and pay off any debt right before(a car doesn't count but 15K in a saving account does)(15k in credit card debt doesn't subtract from assets). stop funding your 401k and fund a roth 401k instead such that there is no reduction in net pay(this reduces your income for financial aid)

when spending down assets, take them from the student asset first, then parents asset, and last home equity and retirement.

one of the problems with putting college savings in IRA is that a withdraw is considered income for the next year. this doesn't matter if funding the last year but will matter if done for earlier years.

[MomofFour]

one of the problems with putting college savings in IRA is that a withdraw is considered income for the next year. this doesn't matter if funding the last year but will matter if done for earlier years.

Does this also apply to ROTH IRA's? Not saying that I would take money out of a ROTH to fund college, just curious!

[simpletron]

Does this also apply to ROTH IRA's? Not saying that I would take money out of a ROTH to fund college, just curious!

yes, and also 401k if you're willing to take the 10% penalty.