Financial Answer Center
- Planning for Your Children's College Education
- Tax Savings Opportunities
- Big Picture Preview
- Fund Your Retirement Plans First
- Don't Agonize–Get Active
As long as it is in line with your priorities and your financial plan, you should typically fund your tax-advantaged retirement plans before funding your college investment program. Your financial future is important and that should be your primary focus.
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An Argument for Funding Your Retirement Plans First |
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Retirement Plans* |
College Investment Program |
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The investments you make toward most retirement plans are tax-advantaged.1 |
The investments you make toward college funding programs may not be tax-advantaged. |
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The income earned in most retirement plans is not taxed until you take it out at retirement.1 |
The income earned in college funding accounts may be taxed currently (there are some exceptions such as Series EE and Series I Savings Bonds, Education Savings Accounts, and Qualified Tuition Programs). |
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Retirement plan assets are not typically considered assets when you apply for financial aid. This increases your chances of getting financial aid. |
Assets accumulated in college investment accounts may decrease the chances of getting financial aid. |
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Having your financial future funded gives you the confidence to help your children in many ways, not just helping them find ways to pay for college. |
If you fund college and you're not making progress on your own financial future, not only are you giving up tax benefits, you're putting your own financial future at risk. |
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*IRAs, 401(k) plans, 403(b) plans, Keoghs, etc. 1 Contributions to a Roth IRA are not tax deductible. The Roth IRA offers tax-deferred growth of your investments. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 1/2 may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
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