A College Planning Quandary
Withdrawing savings from an IRA is one option to
pay for college tuition. But is it a good idea?


If you’re like many Americans, you face a variety of challenges every day. Most parents and some
grandparents find themselves fighting a battle on two fronts: saving for retirement and college at the
same time. This can be a tricky problem. Saving more money in one of the plans invariably leads to
saving less in the other. Obviously you want to have enough savings to retire comfortably, but at the same
time, to put your kids or grandkids through a quality college.

So where do you draw the line between taking from one to give to the other?
And how do you plan successfully to find a proper balance that benefits both
you and your children? That problem is highlighted by the question of whether
or not you should withdraw from an
IRA to help pay for college tuition. The
general consensus seems to be: not if you can help it.

Generally you want to have a successful enough college savings program that
you don’t have to worry about finding alternative sources of money for tuition.
But with sky-rocketing credit hour prices and housing costs on the rise, it’s a
more difficult proposition than it was even a decade ago.

But while prices have been increasing, so have opportunities to save.
529
Savings Accounts, Prepaid Savings Accounts, and Coverdell Accounts are
just a few of the easy ways to save for college.

One advantage of an
IRA withdrawal is that the money can be used for any
qualifying educational expense. But, the disadvantages are obvious. You’re
taking away from future retirement savings and you’re reducing the amount of
earning power you previously held. You’re also faced with the fact that IRA
annual
contribution limits ($4,000 for 2007 and $5,000 for 2008) can make
it hard to restore your previous savings level.

But that doesn’t mean there aren’t ways to catch up. Currently, for people over
50, the law allows you to make extra contributions of up to $1,000 a year. While
this isn’t much, it can at least help restore some of your withdrawal. However,
just as college savings opportunities have increased, so have retirement
savings opportunities. Part of a comprehensive retirement plan includes
investing in various types of retirement plans, including  
401(k)s and private
savings. In addition, your entire retirement shouldn’t be too heavily anchored in
one savings vehicle, IRA or otherwise.

No matter what you do, it’s usually wise to seek input from a financial professional. Withdrawing from an
IRA to pay for college has a lot of unseen consequences that can harm your retirement plan and make
your golden years a bit leaner. One of your best bets is to plan carefully for college as soon as possible
for your children or grandchildren so you’re not forced to decide between retirement or college.
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IRA for College