College Savings for Older Parents
By Jonathan Clements, Director of Financial Education, Citigold Wealth Management December 12, 2011 09:00 AM
According to the National Center for Health Statistics, the number of women having their first child after age 35 increased more than eightfold from 1970 to 2006. Result: More parents are paying college bills when they're in their 60s.
That means parents may face the challenge of paying for college even as they look to retire. But it also opens up an intriguing way to sock away dollars for college costs: If you'll be in your 60s when your children graduate and you're confident you have enough set aside for retirement, you might save for college by funding traditional Individual Retirement Accounts, Roth IRAs, 403(b) plans and 401(k) plans.
These accounts aren't included among the assets used to determine eligibility for federal-financial aid, and many colleges also ignore these accounts when doling out their own aid. Yes, withdrawals from retirement accounts would boost your adjusted gross income, thereby increasing your tax bill. The increase in income could also potentially jeopardize financial aid for the following year. But you could sidestep this problem by taking out loans to pay college costs and then repaying the loans with IRA withdrawals after your kids graduate.
What if your children get heaps of financial aid or go to less expensive colleges--and you don't have to pay nearly as much as you expected? You can hang onto the dollars you stashed in your IRA and 401(k), and use them for your own retirement or bequeath them to the kids.
Investment Products: NOT FDIC INSURED . NO BANK GUARANTEE . MAY LOSE VALUE
Citigroup Inc. and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.
Withdrawals and other distributions may be subject to income tax. In addition, a federal 10% penalty may apply to withdrawals taken before 59 ½.
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