This document discusses balancing saving for retirement and paying for college. It notes that things were different for previous generations who had lower college costs and more robust pensions. While the most expensive option is paying for an Ivy League education, focusing only on retirement means children may have limited college options. The best approach is open communication where both retirement and college are prioritized, including getting children involved in saving for college. Tax-advantaged retirement accounts can be used for college with some pros and cons. 529 plans are also an option after addressing retirement needs. The document provides details on Alabama's 529 plan options.

1. Balancing College and Retirement
Saving
Stephanie Yates Rauterkus, PhD

2. •Agenda
Families & Finance
FAQ #1 How Did Our Parents Do It?
Hint: Things were different!
FAQ #2 What’s More Important?
Sending the kids to college or retiring comfortably.
FAQ #3 How Do We Do Both?
We’re all in this together!
FAQ #4 How Do We Get the Kids Involved?
Rev up those college fund engines!
FAQ #5 How Exactly Do We Get the Ball Rolling?
We can do this the easy way or the not so easy way.

3. •How Did Our Parents Do It?
Hint: Things were different then!
• Purchasing power increased dramatically from the 1950s to the
1970s.
• Many people had pension plans entirely funded by their
employer.
• College tuition was much less expensive then.
• Parents tended to start families at a younger age
The average college tuition at a In 1980, the average tuition at 4-
public, 4-year institution is $7,605. year institutions was $3,499 in
It is $27,293 at private institutions. today’s dollars.

4. •What’s More Important?
Send the kids to college or retire comfortably?
IVY LEAGUE SCHOOLS RETIREMENT
• The most expensive schools cost • You’ll need about $700,000 to
more than $30,000 a year. retire at 65 with $40,000 in annual
• If you choose this option, you will retirement income.
possibly spend most of your money • If you choose this option, your
on college instead of retirement. children may have to go to a less
• A few years into retirement, you expensive school.
may run out of savings. • Your retirement savings should be
• If you cannot make ends meet on enough to keep you from living in
Social Security and retirement, poverty and/or turning to your
what do you do? children for help.

5. •How Do you Do Both?
Remember that you’re all in this together!
• Make it clear early on that
your children are going to
have to pay for pert of their
college expenses themselves.
• Explain that you need to plan
for your own retirement so
that you do not become a
burden on them when you
get older.

6. •How Do you Get the Kids Involved?
Rev up those college fund engines!
• Have children allocate a portion
(25-50%) of their income
(babysitting, gifts, etc.) to a
college fund.
• Set up a bank account for each
child specifically for their
college fund.
• Ask that friends and relatives
consider making donations to
your children’s college funds at
gift-giving times.
• Review the college fund
statements with your children
regularly.

7. •Consider Simplicity
What to do if funds are limited . . .
• Put every dollar you can into
tax-deductible retirement plans.
• The contribution is tax
deductible so the earnings are
tax-deferred.
• You can withdraw funds for your
child’s college education
penalty-free.
• You are less likely to spend
money that is invested in a
retirement plan.
• Financial aid calculations do not
consider retirement plan assets
to be available for college
expenses.

8. •The Pros and Cons of Paying for College
with Retirement Funds
PROS CONS
• You can typically borrow up to 50% • Withdrawing retirement funds
of 401k funds at a low rate (prime + reduces the long-term productivity
1-2%). of your retirement account.
• Paying college expenses with 401k • If you borrow from a 401k and you
loan funds has no impact on a
student’s eligibility for need-based quit your job or are terminated the
financial aid. loan must be paid back in full
• IRA withdrawals for college usually within 60 days.
expenses are exempt from early • IRA withdrawals may be subject to
distribution penalties. income tax.
• Limiting IRA withdrawals to only • Withdrawn IRA funds can
your contributions eliminates negatively your child’s financial aid
income taxes. eligibility in the following year.

9. •Putting Funds in Your Child’s Name Only
Think twice!
• If you have extra money to save beyond your retirement plan
limits ($16,500 or $22,000 if you’re over 50), you may not want
to put it in your child’s name.
• The tax benefits are outweighed by the impact on your child’s
financial aid eligibility.
• Funds in your child’s name are under your child’s control . . .
35% of your child’s assets are 6% of your assets are considered to
considered to be available for be eligible for college expenses
college expenses every year. every year.

10. •Saving for College Through 529 Plans
Something to consider after you address your retirement needs.
• No federal taxes when earnings
are used for qualified expenses
like tuition, room and board,
books and more.
• The money can be used at
thousands of eligible schools
nationwide.
• Anyone can make contributions
regardless of their income.
• Contributions can be as low as
$15 per month.

11. •Types of 529 Plans
Not all are available in Alabama. . .
• Savings – work like a 401K or
IRA.
• Direct Sold – investors purchase
directly from the plan manager.
No sales charges.
• Broker Sold – investors purchase
through a financial adviser but
may pay sales charges or incur
other fees that are used to
compensate the adviser.
• Prepaid – allow you to pre-pay
all or part of the cost of an in-
state public college education
and can be converted to private
and out-of-state colleges.

12. •529 Plans in Alabama
What you should know about Sweet Home Alabama.
• Contributions, including rollover
contributions to an Alabama 529
plan of up to $5,000 per year by an
individual and up to $10,000 per
year by married taxpayers filing
jointly who each make their own
contributions are deductible in
computing Alabama taxable
income.
• Plans (managed by Union Bank &
Trust Company):
• CollegeCounts 529 Plan
• CollegeCounts 529 Fund Advisor
Plan
• Prepaid Affordable College Tuition
(PACT) Program: closed to new
enrollments

13. Questions?
Ask them now or drop me a
note:
Stephanie Yates Rauterkus
srauter@uab.edu