About half of parents would rather withdraw money from their retirement account, work more years or take on a second job than have their kids take out student loans, according to a T. Rowe Price survey.
About 53% of parents would rather use retirement savings to pay college costs than have their kids take on student loans, according to the survey of 2,000 parents who had a retirement account and children age 15 or younger.
Fifty-one percent would be willing to get a second or part-time job and 49% of parents would delay retirement and work more years, according to the survey.
T. Rowe Price also found that 44% of parents said their own student loans have impacted their ability to save for retirement.
“Parents are making a mistake when they don’t prioritize their own retirement over college costs,” said Judith Ward, a senior financial planner at T. Rowe Price. “There are many ways to pay for college, and there is a wide variation of price tags for college degrees. But outside of Social Security and a pension, the way to fund your retirement is through personal savings in a tax-advantaged retirement account.”
Seventy-nine percent of the parents surveyed said they were saving something for their kids’ college costs. However, T. Rowe Price says many of them were using the wrong accounts. Forty-five percent indicated that they were using a regular savings account to do so, and 30% said they were using their 401(k) to save. Just 31% said they were using a 529 account.
There also appeared to be some misconceptions regarding 529 accounts. According to T. Rowe Price, contributions to a 529 account can be withdrawn anytime for any reason. However, 25% of parents cited lack of access as a reason for not saving in this type of account. Additionally, 15% mistakenly thought that saving in a 529 account meant that they wouldn’t be able to get financial aid.
“We recommend saving at least 15% of your salary, which includes any match from your employer, for retirement,” said Ward. “Once retirement is on track, develop a plan to save for your kids’ college and aim to save enough to cover at least a down payment, about half the cost of a four-year education. We recommend using a 529 account, because they provide tax benefits and flexibility for college savings that aren’t available with any other kind of account.”
Paying For Tuition Trumps Retirement Savings, Survey Finds
April 1, 2015
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Here's the document for T. Rowe Price - page iii regarding plan participation affecting financial aid page 29 for qualified expenses, page 30 for non-qualified distributions and penalties, and Page 33-34 regarding need-based aid and FAFSA reporting. https://individual.troweprice.com/Retail/Shared/PDFs/trp529Disclosure.pdf
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I am glad for this article, but there are too many "half-truths" and outright lies in this regarding 529 plans that, per the article, T. Rowe Price gets wrong. First, 529 plans do NOT have the ability to be "withdrawn anytime for any reason". Funds can only be withdrawn for qualified tuition expenses only. If not, then there is a 10% tax penalty on the growth when it is withdrawn. See pages 58-61 of IRS Publication 970 for 2014. In addition, if 529 plans are held in the name of the child, then it can reduce one's ability to qualify for maximum financial aid opportunities. Same as if the asset is in the name of the parent - until the child can qualify for aid aside from the EFC (Expected Family Contribution). American Funds gets it right. See page 11 of this link: https://www.americanfunds.com/individual/pdf/cagebr-001_529pd.pdf "Treatment of Accounts for financial aid purposes CollegeAmerica Accounts may affect a Beneficiary’s ability to qualify for federal need-based financial aid. A 529 account, such as a CollegeAmerica Account, is regarded as an asset of the student if the student is an independent student and an asset of the parent if the student is a dependent student. An independent student generally includes an individual who: • is age 24 by December 31 of the award year, • is an orphan, in foster care or a ward of the court (other rules may apply), • is an emancipated minor, • is a war veteran, • is a graduate or professional student, • is married, • has legal dependents other than a spouse, • is homeless (other rules may apply), or • has special and unusual circumstances which can be documented to his or her financial aid administrator." Please be more careful in how you write articles like this in the future. Perhaps someone who has actually filled out and completed a FAFSA in their lifetime?