Should You Use Your Retirement to Pay for College?

Should You Use Your Retirement to Pay for College?

June 15, 2023

Educational attainment is a bedrock of the American Dream.

We want our kids to do better than us, and we'll do what we can to help them achieve that! But unfortunately, there are dreams, and then there's reality: college costs have exploded over the last twenty years. As a result, most parents and some grandparents find themselves fighting a battle on two fronts: saving for retirement and college at the same time.

You might be eyeing your individual retirement account (IRA) for help. Is it worth tapping your IRA to help pay for college? Let's talk about it!

  • You can use IRA money for qualifying educational expenses. One advantage of an IRA withdrawal is that the funds can be used for any qualifying educational cost (tuition, student fees, etc.). Importantly, the withdrawal amount cannot exceed the amount of your qualifying expenses.
  • 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 IRA annual contribution limits ($6,500 for 2023), making it hard to restore your previous savings level! 
  • There are ways to replace what you take out. For people over 50, the law allows you to contribute an extra $1,000 through a "catch-up contribution," for a total of $7,500. While this isn't a lot, it can help restore some of your withdrawal.

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. No matter what you decide, seeking input from your financial professional is usually wise. So give me a call at (804) 665-1589, and let's discuss your unique situation.

I'm a father of four myself and passionate about helping people plan for the future.