Kids' college vs. saving for retirement: Which way do parents go?
With the cost of tuition soaring, many say they would tap into their retirement funds to pay for it.
More than 90 percent of parents are saving for their child’s college education or would like to start doing so. With the cost of tuition soaring, many are making savings a top priority and even are willing to tap into their retirement funds to pay for it.
Student Loan Hero recently surveyed more than 1,000 parents with children younger than 18. The survey found that most parents are taking proactive steps to make college education a reality for their children.
Most parents would pull from retirement savings to help pay for college.
Although parents have many competing financial commitments, saving for college seems to be at or near the top of the list. Nearly seven in 10 would consider withdrawing from their retirement savings to help pay for their child’s education.
Fathers are especially likely to consider this option, with 74 percent saying they would consider using retirement funds vs. 64 percent of mothers. This option might make sense for some, because the IRS allows them to withdraw from retirement savings to pay for qualified education expenses without penalty. However, draining retirement savings could leave their financial future less certain.
Nearly one-third of parents consider college savings their top priority. One-third of parents say saving for college is their top priority, compared to one-fourth who selected paying off debt and 18 percent who named saving for retirement. Fathers are more likely than mothers to rank saving for retirement at the top of their list (25 percent vs. 13 percent). Moms, however, are more likely to focus on paying off debt (32 percent vs. 16 percent). Other priorities include building an emergency fund (24 percent), investing in the stock market (6 percent) and purchasing life insurance (5 percent).
Women feel guiltier than men over college savings. Seventy percent of parents say they are satisfied with the amount of money they have saved. Fathers are more likely to be confident with their level of college savings (79 percent) than mothers (56 percent). On the flip side, more than twice as many moms as dads say they feel bad about not having saved more (37 percent vs. 17 percent).
Household income certainly helps when it comes to hitting goals for a college fund. Parents with six-figure household incomes are more than three times as likely to have some money saved for their child’s college than those earning less than $35,000 (76 percent vs. 23 percent).
Parents’ own experiences affect college saving levels. Providing assistance for college tends to run in the family. Those whose own parents helped pay for their education seem to be more likely to have saved money for their child’s education. Although household income and other factors certainly play a role in how much parents can save for higher education, those who received such help in their past seem eager to pay it forward.
Many parents start saving for college before their child’s first birthday. College tuition can be a huge expense, prompting many parents to start saving early. The survey found that 37 percent of parents began putting aside money for college before their child’s first birthday. Among that group, 18 percent started saving even before their child was born.
Sixty-five percent of parents aim to save more than $30,000. However, only 33 percent of those who have begun saving say they have accumulated that amount or more. On the other end of the spectrum, nearly 31 percent of those who have started a college fund say they have $10,000 or less saved so far.
Most parents aren’t using 529 plans. Although parents are working hard to save for their kids, relatively few show interest in a tax-advantaged 529 plan. This plan is an investment account that lets them use earnings tax-free as long as they spend them on qualified education expenses. According to the survey, however, 27 percent of parents saving for their child’s college education are using a 529 plan. Instead, nearly three-quarters have turned to regular savings accounts.
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