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Most parents are willing to make financial sacrifices for the sake of their children's futures—and for an increasing number that means tapping into retirement savings.


According to U.S. News ("More Parents Use Retirement Accounts to Pay for College," September 2014), 7% of families with a college-age child withdrew money from a retirement account in order to cover college costs in 2014 (that's up 2% from the previous year). The average amount withdrawn was $8,870 (compared to $2,710 in 2013).


You may have graduated from school with student debt and don't want to see your own kids saddled with that burden as they begin their own adult lives. But if you're under 59½ and use education expenses to qualify for a hardship withdrawal from a traditional retirement plan, you will incur a 10% penalty and will owe income tax on any pretax money withdrawn.


Although you may feel guilty for not covering all college expenses, financial experts agree that if you short-change your future self, your children may be the ones picking up the tab for your long term care. Carefully consider the downsides of retirement plan loans and explore other options before you make that first withdrawal.


TIAA-CREF can help you decide if borrowing from your retirement plan is the right move for you. 


Although you would be tapping into your own savings, you are ultimately losing potential earnings while you pay back the loan: You are also less likely to make new contributions to your retirement plan (and, therefore, miss out on any matching contributions from your employer). A workplace retirement plan loan may come with origination fees; additionally, you run the risk of defaulting if you are unable to make the payments.


A financial advisor can help you figure out if a loan from your retirement plan is a wise decision. If you are really determined to give your kids a cash boost for college, perhaps the best option is setting up a 529 college savings fund while they are still in the cradle.


Have you borrowed from your retirement account to fund your child's education? Share with us.




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