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How to not Let Saving for Your Kid's College Ruin Your Retirement Fund

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    I am not at this point in my life, but as someone who will hopefully retire one day, as well as someone who will possibly have kids one day, this article brings up some good points which cross over both subjects. We all know, higher education is absolutely expensive, and it is becoming more and more difficult for families to save up for such a thing, especially middle to low income households. Then again, saving for 25 years of retirement income is a lot harder than paying for a four year college. At least there are grants, loans and scholarships for college.

    So what does the article say? You should save for your retirement first. For example, let's say it costs 80k for four years of college. Now, let's say you have an annual income of 50k. If you're determined to replace that income after you retire at the age of 60, it's going to be rather difficult. So if you live until the age of 85, then you'd be looking at having to save $1.25 million for your retirement, and that's not even accounting for inflation.

    You should consider loans, grants and scholarships at least to pad the college budget. I think the population of those who saved and drop cold hard cash on their kid's education is getting smaller by the year. Have your kid look into AP classes, community college classes, or, perhaps have them join the armed forces and have them take advantage of the Post 9/11 G.I Bill.

    College aid formulas do not count what you already have in your 401k, IRA or any other retirement account. The article states that you should put your funds into your 401k, then fund your Roth or traditional IRAs, which can be used for college if needed.

    So there you have it, does anyone else have any other strategies that I have listed here?

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    This should help a lot of families wanting to mitigate college expenses:

    The American Opportunity Tax Credit

    Like most tax credits, I would wager most aren't aware of this. But it can save you a lot of money on your taxes, to offset tuition costs. So it could be worth considering paying for tuition at least in part out of pocket. Here's an exert:

    The most generous tax breaks for college costs are the American Opportunity Tax Credit and Lifetime Learning Credit, which offset your tax bill dollar-for-dollar compared to a tax deduction that merely reduces the amount of income subject to tax. You can't claim both credits for the same student in the same year, and income limits restrict who can claim them.

    For 2016, you can claim the American Opportunity Tax Credit of up to $2,500 if your student is in his or her first four years of college and your income doesn't exceed $160,000 if you are married filing a joint return ($80,000 for single taxpayers).

    Above these income levels, the credit is phased out. The credit is based on 100% of the first $2,000 of qualifying college expenses and 25% of the next $2,000, for a maximum possible credit of $2,500.

    The American Opportunity Tax Credit can be claimed for as many eligible students as you have in your family.

    For example, if you have three kids who are all in their first four years of college, you can potentially qualify for up to $7,500 of American Opportunity Tax Credits. Up to 40% of the American Opportunity Tax Credit amount is refundable. That means you can collect at least some of any credit amount that is left over after your federal income tax bill has been reduced to zero.

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    bryce28 Wrote:

    Like most tax credits, I would wager most aren't aware of this.

    You're right. It's out there in the stacks of vague and jargon-filled information, with every other tax credit.

  • Are you sure you want to delete this post?
    These are some good suggestions. It's amazing how expensive college tuition is now and it's likely only going to go up.