Offbeat Fewer parents raiding retirement funds to pay for college

02:01  22 may  2018
02:01  22 may  2018 Source:   msn.com

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It's one of the cardinal rules of savings for parents, yet many pay it little heed: Don't raid your retirement accounts to cover your child's college tab.

With college costs skyrocketing, it is understandable that many parents would pull money from their 401(k) and other retirement plans to cover the here and now of tuition, room and board.

But no matter how tempting and well-intended, that should only be a strategy of last resort, family financial experts say. Not only are there potential minefields involving taxes and early withdrawal penalties, but your time frame for replenishing those funds may be shorter.

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Why sacrifice your retirement strategy when your college student has more options for funding college and a longer time frame for repaying any loans?

More parents seem to be getting that message, according to the 2018 "How America Saves for College" survey released May 17 by Sallie Mae and the Ipsos research firm.

Of the 2,003 parents of children under the age of 18 who were surveyed in January and February this year, 69 percent said they will not withdraw money from retirement plans to pay for education. That's up from 60 percent from the previous survey in 2016.

Ten percent of parents said they are specifically counting on using retirement funds for college, but only half as many as in 2016. Twenty-one percent said they would tap into retirement accounts as a last resort, which was the same as the last survey.

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Why the change in thinking?

Some perspective can be drawn from the research. For example, the survey found that the proportion of parents who expect their children to help pay for college is up -- 59 percent in 2018 from 51 percent in 2016. More money from the kids means less taken out from retirement accounts, said Rick Castellano, a spokesman for Sallie Mae.

In addition, parents appear to be thinking about their own futures -- as well as their children's. And as they plan for the future, saving for college and retirement are both priorities, he said.

Parents are also feeling more confident in the economy, and are more optimistic about the future, noted Julia Clark, a senior vice president with Ipsos.

This year's survey is the seventh since 2009 on parents' attitudes and actions toward saving for college. A separate report, due out soon, will examine student loan debt and other payment strategies.

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Other key takeaways from the survey:

--Six in 10 parents are saving for college, and one-third of them said they saved more this year. The average amount parents reported to have saved is $18,135, the highest amount since 2013.

--Ninety percent of the respondents are confident they'll meet their savings goals; most parents are about a third of the way to hitting their number.

--The average amount parents said they'd like to save by the time their child starts college is $55,342.

--For the first time, the majority of respondents are using state-sponsored, tax-advantaged 529 plans to save for college as opposed to savings accounts and other investment accounts.

Despite the improvement, said Castellano, "savings smarter is still an area of learning for families."

--Among other savings strategies, 13 percent of the survey respondents use shopping rewards programs; 90 percent requested friends and family contribute to the college fund instead of gifts for the kids.

--Despite growing concerns over taking on too much debt, parents in this survey were confident their children will borrow a lower proportion of college costs than today's college students.

--While 59 percent said saving for college should be a "shared responsibility" between parent and child, the majority of parents surveyed have not talked to their children about that responsibility.

That's a disconnect. No matter how uncomfortable the conversation, the sooner you have it, the better.

(Questions, comments, column ideas? Send an email to sbrosen1030@gmail.com.)

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