A COLLEGE PLANNING QUANDARY

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 bothyou and your children? That problem is highlighted by the question of whetheror not you should withdraw from an IRA to help pay for college tuition. Thegeneral consensus seems to be: not if you can help it.Generally you want to have a successful enough college savings program thatyou 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 amore difficult proposition than it was even a decade ago.But while prices have been increasing, so have opportunities to save. 529Savings Accounts, Prepaid Savings Accounts, and Coverdell Accounts arejust a few of the easy ways to save for college.One advantage of an IRA withdrawal is that the money can be used for anyqualifying educational expense. But, the disadvantages are obvious. You’retaking away from future retirement savings and you’re reducing the amount ofearning power you previously held. You’re also faced with the fact that IRAannual contribution limits ($4,000 for 2007 and $5,000 for 2008) can makeit hard to restore your previous savings level.But that doesn’t mean there aren’t ways to catch up. Currently, for people over50, the law allows you to make extra contributions of up to $1,000 a year. Whilethis isn’t much, it can at least help restore some of your withdrawal. However,just as college savings opportunities have increased, so have retirementsavings opportunities. Part of a comprehensive retirement plan includesinvesting in various types of retirement plans, including 401(k)s and privatesavings. In addition, your entire retirement shouldn’t be too heavily anchored inone 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.