raiding retirement to fund son's college?

[albireo13]

My wife and I have about $1.3M now in retirement funds.
Our youngest is about to start college and we have committed to pay for more than half of his college.
Looking at our college savings resources, this means we need to come up with another $20K over the next 4 years before he graduates.
My wife is stressing out about this. We are downsizing now from our clown house and I am driven to drive down our cost of living.  I do not lose sleep about this goal at all, we have combined income > $150K.   That's $5K a year.

  She is now talking about raiding her 401K at some point (after 59-1/2 yrs) to do it.
I think there are lots of ways to get there comfortably.

Aaaugh!!

[ender]

wait you make 150k a year and have 1.3M in investment accounts and are worried/stressing over a measly five thousand per year?

You and your wife need to talk and get on the same page!

Note that "raiding her 401k" after her normal retirement age is normal, especially if you are both retired (why is it "raiding" if she is making reasonable withdrawals?)

[NoStacheOhio]

That's less expensive that day care for a young child. At $150k that shouldn't even be a discussion beyond "should we do this?"

[undercover]

You should know how silly this question sounds in relation to the audience you're asking, your income, and your savings.

We would be baffled as to why you can't save it from your large income, but even more as to why you would be adverse to paying a relatively small penalty on withdrawing $20k immediately, as it's such a low percentage of your overall stash.

Sounds like a troll post to me.

[ohana]

I could come up with that at about 1/3 the income. 

Explain the stress?

[AlwaysLearningToSave]

I'm also confused as to why this is a concern.  Do you currently have a low savings rate?  Do you plan to quit working soon?

If you have a moderately mustachian savings rate and continue working for four years, this should be no problem.  Worst case scenario, you dial back the retirement savings a bit to dump money into a 529 plan or taxable accounts to pay the expenses with your current income.  Don't raid retirement accounts to pay for college if you are still working. 

[soccerluvof4]

All that stress....how can you sleep at night! ................sarcastic :-)

[Trudie]

Although you do not wish to saddle your son with extreme levels of debt (admirable) he has the rest of his life to earn and you have a much shorter window to replenish your retirement.  Don't do it!!!!

Maybe others who have "hacked" the FAFSA can speak to it better, but I'd clearly try to understand what "counts" as income on the FAFSA.  I think -- like most things -- they look at the AGI... so anything you can do to legitimately reduce your AGI (eg 401k contributions) holds you in good stead.

My parents funded my college education with some lifestyle downsizing, HELOC, and contributions on my part.  Honestly, they did way more for me than I could expect of a kid today.

[2Birds1Stone]

Cash flow it.......I don't understand the issue.

[BTDretire]

My wife and I have about $1.3M now in retirement funds.
Our youngest is about to start college and we have committed to pay for more than half of his college.
Looking at our college savings resources, this means we need to come up with another $20K over the next 4 years before he graduates.
My wife is stressing out about this. We are downsizing now from our clown house and I am driven to drive down our cost of living.  I do not lose sleep about this goal at all, we have combined income > $150K.   That's $5K a year.

  She is now talking about raiding her 401K at some point (after 59-1/2 yrs) to do it.
I think there are lots of ways to get there comfortably.

Aaaugh!!

 That sounds like a breeze.

I'm retireing this year although my wife will continue to work.
 Our daughter just decided to go back to college to become a dentist.
That's $40k a year for 5 years if we are lucky. For the math challenged, 5 x $40,000 is $200,000. That's going to take away all savings for the next 5 years, then I expect my wife to retire. I hope we don't need to touch any of our retirement saving. If it looks 
like that, I'm cutting the cable! Nah, We'll be fine we have a nestegg similar to yours.
 I'm happy to do this for my daughter, she's still young, smart and a hard worker,
she will make the best of it. I might have been a little happier the first time we put her through college though ;-)
 

[Dicey]

Fuck, no! Next genuine question, please.

ETA: Wow! I must have been in quite a mood when I wrote that. I've read all the helpful posts since mine and ... my answer's still the same. I might say it in a softer tone of voice, but the message is the message.

[TheAnonOne]

Pay for it out of your income? I don't know why with $150k /year in income you would need to worry about removing it from investments...

Presumably you have 4 years (5k/Y) to make these payments. Which is more or less $400-$500 a month. Though, i'll assume you can just pay for it with 1 or 2 paychecks.

[MrsPete]

We're much like you.  We earn a little less, have a little more in net worth, and I suspect are a little older.  Our oldest is just finishing college, and our youngest is about to finish freshman year.  Our oldest is finishing on time, debt-free, and has a good job waiting; our youngest is on track for the same. 

Our kids both earned some nice scholarships, and we've had no problem cash-flowing the rest.  Really, it's been easier than we expected. Even without the scholarships, we would've been able to do it -- though it would've required more effort on our part. 

We had a backup plan:  We were prepared to stop making contributions to our retirement plans.  Why?  Because we're close to retirement, and our best savings years are behind us.  We saved heavily when we were younger, and we are happy with where we are.  If we hadn't done that; that is, if we were playing "catch up" at this point, this wouldn't be an option. 

Let me be clear:  We were NOT thinking about what you're thinking.  We were not talking about taking already-socked-away money out of our accounts.  That's problematic.  You pay fines, it messes with your taxes, and it's just not a great idea. 

But, no, if you need 20K over the next four years, I don't think taking from your 401K is your best bet.  You need roughly $400/month between now and then.  You can do that.  Actually, you have four years to come up with 5K ... five years to come up with another 5K ... six years for the next 5K ... and seven years for that last 5K. 

One thing to consider:  Is he your only child?  If you have other kids, plan to do the same thing for them.  I've known a couple families who've moved heaven and earth to make sure the oldest child could attend "the school" and have "the college experience ... but then by the time the younger kids come along, they've realized the error of their ways, seen the debt they were incurring ... and they've told the youngest he's going to community college and should be grateful.  Be sure each child has equal opportunity.  They may not make the same choices and/or may not step up to the plate equally, but be sure they both have the same chances in terms of your help. 

[fishnfool]

I would think that the mustachian approach would be to have your kid pay for his or her own college,  that's what I did.

[ltt]

It will be much easier because you are forgetting about the American Opportunity tax credit for college education, or is that already factored in??  You'll get up to $2,500 per year back as a tax credit (as long as the IRS keeps renewing it) on your taxes as long as you and your spouse have less than $160,000 modified gross income and as long as you've got as least $4,000 in tuition, fees, books, etc.  See your CPA for advice or look on the IRS website.

If all of your $1.3M is in retirement accounts like IRAs or 401ks, then there should be no reportable  dividend income, etc., will your modified gross income stay under $160,000 for the both of you.

If that is the case, and you can claim the entire credit or $2,500 or even a partial credit of $2,000 or so, then you are only going to have to come up with $10,000 to $12,000 over the course of 4 years.  That's $2,500 to $3,000 per year.

[albireo13]

To be clear, I do not stress at all and think we can easily cover this with cash flow and savings adjustments.  My wife is 56 and plans to work another 7 years.

She is resistant to life style changes and gets depressed over finances. 

I just don't see the need to touch retirement savings

[Pigeon]

To be clear, I do not stress at all and think we can easily cover this with cash flow and savings adjustments.  My wife is 56 and plans to work another 7 years.

She is resistant to life style changes and gets depressed over finances. 

I just don't see the need to touch retirement savings

So make a plan to come up with the $5K/year without plundering retirement accounts and sit down with her and discuss it. Show her where the funds will come from.  I agree with Mrs. Pete, if there is no way to cash flow the $5K (but I strongly doubt that), suspend your retirement contributions for a few years, but don't take out what you've already put in. 

[ADV_CJ]

To be clear, I do not stress at all and think we can easily cover this with cash flow and savings adjustments.  My wife is 56 and plans to work another 7 years.

She is resistant to life style changes and gets depressed over finances. 

I just don't see the need to touch retirement savings

Tell her to grab a glass of wine and relax while you both go through a written plan.  Sometimes having things spelled out with pen & paper can alleviate stress. 

With your combined income and savings rate, I don't see where she could get stressed out over finances.  You might be surprised at how one or two simple lifestyle modifications could easily come up with the required money to help your child out.

[Moostache]

She is resistant to life style changes and gets depressed over finances. 

It sounds like there are larger things up for discussion though. Unless the lifestyle change has to do with reducing savings rate to cover the additional cost for educational expenses retirement itself will represent a lifestyle change.  Good to get a grip on all that now for a smoother transition later.

[Tetsuya Hondo]

Sometimes having things spelled out with pen & paper can alleviate stress. 

Second this. Fleshing it all out with a paper and pencil can help her see it's not that bad given your finances. Be sure to list the various options for helping pay for college that you/your child might be eligible for: scholarships, student loans (better than raiding the 401k and tax deductible depending on your AGI), college work-study, etc.

You can also stress how cheap $5k/year is compared to the average cost of tuition (assuming you're in the US) most people are paying. That's a breeze. I'm worried my daughter will want to go to my wife's alma mater, which runs over $40k/year. Ugh. My blood pressure spiked a bit just typing that.

[honeybbq]

My solution would be to write a check....

[MrsPete]

I would think that the mustachian approach would be to have your kid pay for his or her own college,  that's what I did.

I did it too, and it was far from easy.  While it was character-building, it was not a positive experience for me:  I lived in some dangerous places, and it's only the grace of God that nothing really bad ever happened to me.  It took me longer to earn my degree, and I did not feel any great sense of accomplishment because I'd done it on my own. 

When I look at my oldest, who is about to graduate, I see that she is far better off than I was at her age.  She worked a part-time job during the school year and full time in the summers, but because her needs have been taken care of, she has been more relaxed about her college education.  She is graduating with a better GPA and with solid professional connections.  She worked very hard over the last four years, and she's extremely grateful for what her Dad and I have provided for her.

To be clear, I do not stress at all and think we can easily cover this with cash flow and savings adjustments.  My wife is 56 and plans to work another 7 years.

She is resistant to life style changes and gets depressed over finances. 

I just don't see the need to touch retirement savings

Okay, I take one thing back from my previous post:  I'm a good bit younger than y'all -- or, at least your wife. 

I'm solidly in your camp:  Don't touch retirement savings, but I understand why she's worried -- it's ingrained in our society.  Pretty much everyone complains that paying for college is essentially impossible, that middle class earners have no chance, etc., etc., etc.  But my family's much like yours, and we really haven't had a problem. 

I suspect what she needs is solid information.  Sit down together and go over the numbers.  I often need to make lists, talk things out, and just process details before I can be satisfied about how I want to proceed with a decision. 

[GuitarStv]

My solution would be to write a check....

But it'll cost you an ivory back scratcher . . . so there will be hardships associated with that cheque.

[albireo13]

Even after we scratch up the $20K, my son is expecting to get out with ~ $60K in student debt, after 4 years.
We have always told our kids that we will help as best as we can but, they will need to pay for much of their college.
Our loose goal (5 kids) has been to try and cover 1/2 of each of their college expenses. They cover the rest.
It's good that the kids have some "skin in the game" to appreciate the college investment.

[Cranky]

I'm actually a big fan of helping kids to come through college with as little debt as possible, so long as they take it seriously. And I've put my money where my mouth is and written checks (or hit the Pay Electronically button) for that tuition. Our take home is quite a bit less than yours, but we've been able to shake money out of the regular budget.

However, we've insisted that the girls go to schools that are good fits for them, academically and economically.

One went to a super expensive and well known liberal arts college - and got a fantastic scholarship. We actually paid less for that than we did for another daughter's 4.5 years at a respectable but unimpressive state university (where she graduated magna cum laude, so she certainly did apply herself more than she did in high school!)

3rd kid is doggedly working her way through the local university. We cover her tuition and fees and she works to pay her living expenses. I'd be happy to pay those, since we did with her sisters, but she'll have none of it.

I'm glad to be able to do this for them and not have them start out with debt.

[mozar]

I recommend therapy for your wife. You have to be seriously depressed if you are worried (about anything) with an 1.3m stash. For perspective my college cost me 25k per year.

[bb11]

I recommend therapy for your wife. You have to be seriously depressed if you are worried (about anything) with an 1.3m stash. For perspective my college cost me 25k per year.

+1

[MrsPete]

Even after we scratch up the $20K, my son is expecting to get out with ~ $60K in student debt, after 4 years.
We have always told our kids that we will help as best as we can but, they will need to pay for much of their college.
Our loose goal (5 kids) has been to try and cover 1/2 of each of their college expenses. They cover the rest.
It's good that the kids have some "skin in the game" to appreciate the college investment.

I don't buy into the "skin in the game" concept.  This is the same kid you've been raising for the last 18 years.  By this point he has already learned to appreciate what he's given, or he hasn't.  Paying a portion of his own education may reinforce this lesson, but it will not suddenly create appreciation if it didn't already exist. 

Second, borrowing 60K isn't "skin in the game".  To a typical 18-year old it's a vague promise that in (what seems to him) the distant future he will pay back an amount of money that seems unreal. 

I agree with the idea of a student paying a portion of his college education so that it's not a burden on his parents (and with five kids, I can see how it'd be a burden), but I don't agree that it's a learning experience or character building exercise. 

[albireo13]

Oh, it really is a learning experience for a kid who has never had to pay a real bill in his life.  But, "teaching him a lesson" isn't the goal here.  It's the fact that Mom and Dad  don't just pony up several years of life savings  without him contributing at least something. And his contribution is a small part of the whole bill.

We actually coached him to select the more "sane" college offer that he has received.  There were a few acceptances from schools costing > $60K/yr  with no financial aid offered at all.

[Yaeger]

Oh, it really is a learning experience for a kid who has never had to pay a real bill in his life.  But, "teaching him a lesson" isn't the goal here.  It's the fact that Mom and Dad  don't just pony up several years of life savings  without him contributing at least something. And his contribution is a small part of the whole bill.

We actually coached him to select the more "sane" college offer that he has received.  There were a few acceptances from schools costing > $60K/yr  with no financial aid offered at all.

I completely agree. It shouldn't be 'free' on his part, he's an adult and there needs to be financial contribution towards his adult professional education. From personal experience 5-ish years ago getting my undergrad, the kids that had parents paying for it were more likely miss classes, not turn in assignments, change majors. The students that worked, had kids, or understood the once-in-a-lifetime chance they were being offered took it very seriously. It wasn't true for everyone, I'm using a pretty loose generalization, but I do support the 'skin in the game' notion.

We tend to blur the lines a lot with these young adults, but we send younger people off to die in wars. They're not little boys or girls in need of a financial wet nurse anymore.

[bb11]

Oh, it really is a learning experience for a kid who has never had to pay a real bill in his life.  But, "teaching him a lesson" isn't the goal here.  It's the fact that Mom and Dad  don't just pony up several years of life savings  without him contributing at least something. And his contribution is a small part of the whole bill.

We actually coached him to select the more "sane" college offer that he has received.  There were a few acceptances from schools costing > $60K/yr  with no financial aid offered at all.

I completely agree. It shouldn't be 'free' on his part, he's an adult and there needs to be financial contribution towards his adult professional education. From personal experience 5-ish years ago getting my undergrad, the kids that had parents paying for it were more likely miss classes, not turn in assignments, change majors. The students that worked, had kids, or understood the once-in-a-lifetime chance they were being offered took it very seriously. It wasn't true for everyone, I'm using a pretty loose generalization, but I do support the 'skin in the game' notion.

We tend to blur the lines a lot with these young adults, but we send younger people off to die in wars. They're not little boys or girls in need of a financial wet nurse anymore.

I agree with this. My parents didn't help me at all with college (graduated in 2012) or now grad school (2018, though I chose the school that offered a full scholarship due to lack of help) and I think from a character standpoint it has definitely helped me. I cannot imagine any hypothetical future children of mine having their entire college education paid for by me.

[ender]

Oh, it really is a learning experience for a kid who has never had to pay a real bill in his life.  But, "teaching him a lesson" isn't the goal here.  It's the fact that Mom and Dad  don't just pony up several years of life savings  without him contributing at least something. And his contribution is a small part of the whole bill.

We actually coached him to select the more "sane" college offer that he has received.  There were a few acceptances from schools costing > $60K/yr  with no financial aid offered at all.

I completely agree. It shouldn't be 'free' on his part, he's an adult and there needs to be financial contribution towards his adult professional education. From personal experience 5-ish years ago getting my undergrad, the kids that had parents paying for it were more likely miss classes, not turn in assignments, change majors. The students that worked, had kids, or understood the once-in-a-lifetime chance they were being offered took it very seriously. It wasn't true for everyone, I'm using a pretty loose generalization, but I do support the 'skin in the game' notion.

We tend to blur the lines a lot with these young adults, but we send younger people off to die in wars. They're not little boys or girls in need of a financial wet nurse anymore.

The biggest problem with this attitude is parents who don't actually guide/teach their kids in the decision. "Skin in the game" only matters if you know and understand what is going on.

I cannot recall a single conversation with my parents about the financial implications of college, in terms of tuition. I could very easily have ended up in a situation with $50-100k worth of student loans, given how relatively little my parents talked about this or taught me how to be fiscally responsible.

I consider myself incredibly lucky to end up where I am today given the lack of information when I was younger.

[MrsPete]

Oh, it really is a learning experience for a kid who has never had to pay a real bill in his life.  But, "teaching him a lesson" isn't the goal here.  It's the fact that Mom and Dad  don't just pony up several years of life savings  without him contributing at least something. And his contribution is a small part of the whole bill.

We actually coached him to select the more "sane" college offer that he has received.  There were a few acceptances from schools costing > $60K/yr  with no financial aid offered at all.

First thought:  Why would you allow your child to reach the age of 18 without having been responsible for anything financially? 

Second thought:  Maybe you don't care for the wording of "teaching him a lesson" -- that does imply that he's done something wrong, and you're gonna correct him!  But the whole concept of "skin in the game" is to foster responsibility, etc. -- not really about the money.  That's where I say the concept breaks down:  If you haven't taught that responsibility by 18, borrowing (and that's where the discussion began) isn't going to suddenly help the student understand anything.

[Sibley]

OP, you don't have a money problem. Your wife has an emotional problem. And it's only going to get worse once your kid(s) are out of the house. My normally sensible, well balanced mother went a little crazy once she had no kids at home. Luckily, she adjusted within about 6 months.

For her sake, she needs to get a handle on the real issue here, whatever it is. Therapy is a good idea. Cause money isn't the problem.