The Times Herald (Norristown, PA) - - BUSI­NESS -

Bronf­man Roth­schild in Madi­son, Wis­con­sin. “This is not ideal, be­cause it re­duces your re­tire­ment sav­ings, but it is an op­tion.”

It could hurt your kids, too

Tap­ping your re­tire­ment sav­ings can boomerang to hurt your kids if they need to pro­vide fi­nan­cial help for you in your later years.

“We see clients want to help their kids through col­lege at the ex­pense of their own re­tire­ment, and we al­ways ad­vise against it,” says Matt Ahrens, a fi­nan­cial ad­vi­sor at In­tegrity Ad­vi­sory in Over­land Park, Kansas. “Par­ents have to un­der­stand that sac­ri­fic­ing to help their kids through col­lege may only put more stress on their chil­dren when they see their par­ents strug­gling fi­nan­cially in re­tire­ment.”

A more im­me­di­ate blow: Us­ing your re­tire­ment funds could hurt your child’s abil­ity to qual­ify for stu­dent aid. Why? The cash is con­sid­ered “or­di­nary in­come” and may put your to­tal wages for the year be­yond what qual­i­fies for as­sis­tance.

Be­cause re­tire­ment ac­counts aren’t counted when con­sid­er­ing if a fam­ily eco­nom­i­cally qual­i­fies, “fund­ing your 401(k) or 403(b) is an ad­van­tage for col­lege fi­nan­cial aid,” says Kim­berly J. Howard, a cer­ti­fied fi­nan­cial plan­ner with KJH Fi­nan­cial Ser­vices in New­ton, Mas­sachusetts.

Cash them out, and that ex­clu­sion goes away.

A 529 plan is the best way to save

More Amer­i­cans tuck col­lege sav­ings into or­di­nary bank ac­counts (45 per­cent) than a 529 sav­ings plan (29 per­cent), ac­cord­ing to the 2018 Sal­lie Mae sur­vey. But 529 plan in­vest­ments have much more earn­ing po­ten­tial than an or­di­nary sav­ings ac­count, which of­ten grows less than 1 per­cent a year.

“Par­ents of young chil­dren should start a 529 fund right away, and add money ev­ery month. Ev­ery lit­tle bit helps, and it will have the ad­van­tage of years of com­pound­ing,” Ahrens says.

“The first sav­ings a fam­ily should make should be into their re­tire­ment ac­count at work in or­der to get their com­pany match. Then the re­main­ing sav­ings can be split be­tween re­tire­ment — ei­ther at work or into a Roth IRA — and a col­lege sav­ings plan, like a 529 plan,” says Derek Ha­gen, a cer­ti­fied fi­nan­cial plan­ner with Ha­gen Fi­nan­cial in Min­netonka, Min­nesota. This ar­ti­cle was pro­vided to The As­so­ci­ated Press by the per­sonal fi­nance web­site NerdWal­let . Kevin Voigt is a writer at NerdWal­let. Email: kevin@nerdwal­ . Twit­ter: @kev­in­voigt.

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