• Skip to main content
  • Skip to primary sidebar
  • Skip to footer

  • About
    • About us
    • Why SeedTime?
    • Our Beliefs
    • The Story of SeedTime
  • Podcast
  • Free Book
    • Get your 1st copy free (+S&H)
    • Order multiple copies here
  • Programs
    • Login
    • Mission-Driven Millionaire
    • True Financial Freedom
    • The Real Money Method (unbudgeting) course
    • The 10x Investing course
  • Churches
  • Blog
    • The 14 Financial Tools We Actually Use
    • Our strategy for giving away millions
    • 5 Bible Verses You Should Know (Free PDF)
    • 25 Ways to Save Money
    • Why we began giving our age as a percentage
    • My Checklist To Financial Freedom (Free PDF)
    • Tithing: an honest look and what we do
    • Why I took a Sabbatical YEAR (and how I did it)
    • How to travel for FREE [161 hotel nights and 103 flights all free]
    • 4 Financial Lessons from Solomon: The Richest Man Ever
    • How to become a millionaire by turning $2k into $1 mil
    • How to get out of credit card debt (Free PDF)
    • How I made $2,145 Last Month by decluttering
    • How I Broke Free From the Rat Race (in less than 2 years)
    • We just checked off the biggest goal in our life
    • Our Honest Medi-Share Review after 14 years
    • 4 Money Habits To Start (that basically guarantee financial success)
  • Email

Should You Use Retirement Savings For Your Kid’s College?

written by Tim | Managing Money

should you use retirement savings for your kid's college

Saving for your child’s college tuition can be a difficult task, especially in today’s economy.  According to a study by Sallie Mae, 60% American families save regularly for their child’s college tuition.  A surprising 24% of parents who save, however, admit to using their retirement savings to cover tuition for their children.  Tapping into your retirement savings for tuition can jeopardize your financial future and may not be the best thing for your child either.

The Negatives of Raiding Your Retirement

Your financial plan may already be suffering

If you’re part of the 60% of baby boomers surveyed by WSJ who feel unprepared for retirement, dipping into your retirement account will only set you back even further in your financial goals.  In a time that you should be increasing your savings, you’re taking a big risk by shrinking your retirement account with the withdrawal.

Catching up is even more difficult

Sure, you’re allowed to make catch up contributions to your retirement account if you’re over 50, but will you actually follow through?  Relying on unknown future income to repay your retirement balance is a giant risk that isn’t very wise.

Withdrawals are subject to income taxes

Yes, the 10% early withdrawal penalty is waived for college expenses, but the amount you withdraw is still subject to income taxes.  This is an important thing to consider because an increase in your income will affect your child’s financial aid eligibility for the next year.  Higher income can mean less financial aid for your student.

It may spur a sense of entitlement

Although your goal is to provide your children with the best schooling available, paying their way may cause an unintended sense of entitlement.  Teaching them proper money management skills and taking advantage of the saving options at the end of this article may be a better solution than paying their tuition and sacrificing your retirement for it.

The Consequences Of Using Retirement Funds For Tuition

If you’re 45 years old and have about $100,000 in your 401(k), let’s see how your retirement goals can be affected by withdrawing funds to pay for college.

You want to dip into your retirement account to pay for your children’s college totaling $75,000.  You’ve been saving $200 each month for twenty years at 7% and think that if you simply increase your contribution, the $75,000 ‘dip’ will be recovered in no time.  You have another 20 years til retirement to catch up…right?

college1

Your friend (green bar) doesn’t dip and contributes the same as you.  Instead of taking a large portion of his retirement account, he helps his children when he can by paying for books and food here and there.

college2

Even if you tripled your contribution to $600 per month for the next twenty years, you’re worse off than someone who simply maintained contributions of  $200 each month.
(‘Dip’ with additional $600/ month = $449K vs. No ‘Dip’ at $200/ month = $509K)

college3

Don’t Be Fooled With These Excuses

But the 10% penalty is waived!
Just because the IRS allows something doesn’t mean it’s a good thing.  In the example above, the person who dipped into their account had significantly less – even with the added catch-up contributions.  The math doesn’t work in your favor.

I can borrow from my 401(k)
Yes, you can borrow from your 401(k), but you have to pay it back in 5 years and sometimes immediately if you change jobs.  The student can repay a standard government loan over a period of 10 years and sometimes extend the term if needed.

My kids will take care of me
Do you really want to depend on your children for your financial future?  That can be an even bigger burden to your children than repaying a school loan

Let’s face it, your children have a better chance of surviving financially because they have this on their side: TIME.  Your children are young and can use compounding to their benefit.  With proper planning, your child can manage their student loans, save for their own retirement, and still live a financially balanced life.  If you dip into your retirement funds, you won’t let compounding interest work in your favor as greatly, you might stress over making catch up contributions, and you may get behind in your financial plan.  Even more, by trying to keep your children from having the burden of student debt, you may unintentionally create a new burden of taking care of Mom and Dad financially.

Instead of risking your retirement for your kid’s tuition, take advantage of these better options for saving for college:

  • 529 College Savings Plan
  • Apply for Financial Aid or Scholarships
  • Federal Loans – Student Loan Forgiveness Programs
  • Work Study Programs / Part Time College Jobs

What’s your opinion on this issue?  Do you plan on using retirement funds to pay for your child’s college tuition?

Related posts:

  1. What to Do if You Can’t Pay Your Taxes
  2. What Does the Bible Say About Worrying About Money?
  3. 10 Easy Ways to Save Money at the Vet
  4. 4 Things the Apostle Paul Teaches Us About Money & Giving
IFCFH Book of the Year
"The best combination of personal finance and the Christian faith that I’ve read"
– James T. (SMRL reviewer)

In this biblically sound and grace-filled money book, you'll discover the NEW rules of money that will transform your financial life. Say goodbye to outdated advice and hello to a simple, automated system that helps you achieve better results with less time and effort.

"The best combination of personal finance and the Christian faith that I’ve read"
Learn more
We earn a commission if you make a purchase, at no additional cost to you.

Primary Sidebar

Bob Lotich

Hi there! We are Bob & Linda Lotich. Jesus followers, authors, podcasters, and undying fans of Michael Scott.

This site contains the lessons we learned on our journey from being stingy, debt-ridden fools, to being able to reach our biggest financial goal of giving $1 million by age 40, having zero debt & a paid off house by age 31, and peace with money in the process.

Now we share our best lessons with people like you, groups, and churches with our Award-winning book Simple Money, Rich Life and our 6-week video course True Financial Freedom.

Grab our book!

Simple Money Rich Life

Legal Disclaimer

The articles on this site should not be taken as financial advice. Please contact a financial advisor (or coach) for specific advice regarding your situation. Any references to interest rates, giveaways, deals, products, and websites are subject to change without notice. We try our best to keep the information current, but things are always changing so it may be different now than when it was first published. Also, all the pages on SeedTime help us pay the bills by using affiliate relationships with Amazon, Google, eBay and others but our opinions are NEVER for sale. Find out more here.

Footer



SeedTime is a 2x Plutus award winning website.
seedtime money logo



SeedTime BBB Business Review
seedtime instagram seedtime money youtube channel seedtime money twitter with Bob Lotich


Our book Simple Money, Rich Life was named 2022 book of the year!
  • Home
  • About
  • Beliefs
  • Blog
  • Courses
  • Churches
  • Press
  • Shop
  • Affiliates
  • Login

Privacy Policy | Terms | Reviews | Earnings Disclaimer | Contact | 636-344-0438
625 Bakers Bridge Ave Suite 105-134 Franklin, TN 37067
©2007-2025 · SeedTime (Formerly ChristianPF)