Stealing From Yourself: Parents Use IRA Withdrawals to Finance Education

Libby Kane

Posted on Oct 5, 2010

Clearly, there are a considerable number of parents out there trying to break our hearts. Recent research reveals that—we’ll quote here—“Nearly a quarter of the nation’s parents saving for their children’s college education intend to raid their own retirement accounts.”

Parents Steal From Themselves

CNN Money reports that despite the tax liability incurred by raiding one’s 401(k), 24% of parents plan to pay for their children’s education by using money from their retirement accounts. They plan to.

In other words, they haven’t established a handy college fund and then lost of the money in a stock market crash, forcing them to finance Junior’s dream of becoming a doctor with the only money they have—they fully expect to use their retirement accounts as a source of money. And another survey (apparently the survey industry isn’t suffering) says that using this money for college isn’t all that unusual, as parents have increasingly treated retirement accounts as just another savings account.

3 Reasons to Leave Your Retirement Fund Alone

Let’s type through the tears for a moment and be rational. Withdrawing money from a retirement account for tuition does the following:

1. Includes the money into your adjusted gross income and reduces your qualification for financial aid.
2. Incurs tax penalties.
3. It makes the money disappear—you will likely never see it again.

Don’t Stretch Too Thin

We can’t sob—we mean say—it enough: a retirement account is for retirement! Remember? It’s that gilded time of life when you’re finished working and need every penny to finance a life of leisure. Far be it from us not to sympathize with parents wanting to give their children every advantage, but the tide is moving away from pricey educations and prestigious diplomas. Consider the colleges favored by recruiters, and the monetary advantages of attending college in-state.

We Worry Because We Care

It’s not that we don’t value an education, or understand how stressful it can be to tighten the purse strings, it’s that we’re worried about our future—and yours. The economy changes every minute without a semblance of valid predictability, and all we can do is arm ourselves the best way we know how: with a solid, sacred retirement fund.

Tell us in the comments: Does hearing about retirement fund withdrawals make you frustrated, sad, or amused?