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Your 401(k) isn’t a college fund. Here’s a guide to paying for your kid’s education without sacrificing retirement. – Morningstar

By Jennifer Nelson

Here’s why financial advisers discourage parents from contributing to their…….

By Jennifer Nelson

Here’s why financial advisers discourage parents from contributing to their kids’ college funds at the expense of their own retirement

This article is reprinted by permission from

Mya Payton, 58, of Southeastern Pennsylvania, is divorced with four children, the last of whom is in college now. “Over the course of the time my kids were in college — 2014 to now — their dad has been willing to pay for 50% of their college tuition and some related expenses, leaving each kid and me to fund/find the rest.”

Payton has paid her share through a combination of liquidating most of her non-retirement savings, taking out equity in her home, and forgoing all but the bare minimum to her self-employed pension plan (and in at least one year, not making any contribution at all).

To help her last child, Payton said she is considering liquidating some retirement savings next year, when she turns 59 1/2 and thus will no longer have to pay a 10% early-withdrawal penalty included in tax-deferred retirement-savings programs. Her goal, she said, is to “hopefully avoid [student] loans.”

Is that a great idea or one of the worst financial mistakes a parent can make?

Eric Nero, a Certified Financial Planner and president of First-Step Wealth, a comprehensive wealth-planning service in Saratoga Springs, New York, says many parents think that tapping or stopping their retirement savings is a viable way to help their children pay for college and graduate school student loan-free.

A big mistake, made by many

In fact, he says, the resulting loss of compound interest, tax breaks, time, and financial aid eligibility make this one of the biggest financial mistakes parents make.

A 2022 Retirement Confidence Survey by the Employee Benefit Research Institute found that more than 4 in 10 working parents say they are reducing what they save for retirement because they are also saving for a child’s college education.

And a recent report from Morningstar (MORN), the financial research firm, says parents who put money in a college fund rather than a retirement account miss out on many thousands of dollars in investment gains, …….


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