More parents are pulling money out of their retirement plans to pay for their children's college educations, according to a Gallup survey for Sallie Mae that examines how people pay for higher education.
In 2010, 6 percent of parents pulled an average of $8,554 from their retirement accounts, while in 2009 only 3 percent reduced their accounts by an average of $5,318.
To me, this doesn't sound like very smart retirement planning. In the last 15 years, my husband and I sent four kids to college and me to graduate school. We never touched our retirement savings because the colleges never asked us to. Generally, retirement funds are sacred -- even at schools that don't strictly follow the federal student aid doctrine. Sallie Mae even advises building retirement accounts.
If you think there is no avoiding raiding your retirement fund, take aim first at IRAs -- maybe from a previous employer. Even if you are younger than 59 1/2, you you can take money from this account to pay for college without paying a penalty -- and you don't have to pay it back. Bankrate explains the specifics here. Otherwise, you might qualify for a hardship 401(k) withdrawal if you can prove to your administrator that you have no other options, but you will have to pay the 10 percent penalty if you aren't 59 1/2. Another possibility is a 401(k) loan.
One argument for not dipping into your retirement savings is that you have no idea what the future brings. Putting the debt in your children's names doesn't preclude your helping them pay it off -- or paying it all off for them. And you might not have to. One of ours joined the Peace Corps and that erased most of his debt. Another got a blockbuster job with a great bonus system right out of school and paid his loans off promptly. We couldn't have guessed either of these things when they were 18.
On the other hand, barring a catastrophe, there isn't much doubt that all of us will get old eventually. That's why retirement planning is so important.