Having a family is great! Trying to retire early with a family is difficult. The needs of my family changes every day every year. One of the needs that I keep in the back of my mind is how do I afford college for the children while trying to retire early? I have 7 years to figure it out and it’s one of the biggest expenses along with my mortgage. I’ve done some research on 529 plans and I know a few who have done the pre-paid version of the 529. I went the other route and opened the investment version of the 529 during the COVID-19 pandemic because I don’t know what the future holds and I’m hesitant to lock my children and myself into something I don’t know they will need. What if they don’t go to college? What if they get scholarships? What if tuition isn’t as much? What if they go to college that is local and doesn’t need room and board? These are the reasons why I decided to go with the investment option and I control how much to invest. Yet, how do I prepare myself for the extravagant college costs for both of my children? Start early to help pay for college and help your children focus on learning.
Open A 529
Research and open the 529 plan that is best for you. I chose the investment version because I was not locked into a fixed amount and I could use the 529 for any educational purposes even before college. If my children needed computers in high school, I could withdraw funds as these purchases are eligible expenses. Read the details of the 529 you open to see the benefits. Since I opened up my 529 this year, I have a positive return which is great!
Open An IRA
When you think of an IRA, you think of your retirement account. What if you can use your retirement account for educational purposes? If you have a 401K with your current employer, great! What do you do when you leave your employer? You have a few options
- Keep your 401K as it is and leave it with the current investor
- Rollover your 401K to your new employment 401K (if you’re going to another job that offers a 401K)
- Rollover your 401K to an IRA
- Withdraw your 401K with penalty and keep the remaining money that you will pay taxes on
Check with your 401K investment company to see what their policy is on early withdrawal for educational purposes. What I’ve read is that you borrow against your account and you have to pay it back. On the other hand with an IRA, when you withdraw funds for educational purposes, you are exempt from the 10% early withdraw fee and you don’t have to pay it back. I didn’t realize this benefit but I’m glad I opened my IRA early.
Pay Off Debt
There’s nothing worse than tacking on more debt on top of what you have. Make every attempt to reduce the amount of debt you owe. This will give you some breathing room to comfortably open up a 529, IRA, or just save.
Starting a 401K and maximizing your contributions early can help you in the long run. I started a 401K since my first job till now and I rolled over my old 401K’s to an IRA. Not knowing the benefits of a 401K or IRA, other than it’s your retirement money, I’m in a position that is in favor for me because I could potentially tap into my IRA and avoid early withdraw fees for educational expense I have in the future. If I hadn’t started early, I wouldn’t be as comfortable because I would be more focused on having enough for retirement instead of education. The beauty of the IRA is the multiple purposes the funds could be used while avoiding fees.
College and other higher education is a time to enjoy and take full advantage of. Not having the burden of “how to pay for it” on your children is one of my goals. Student debt is over $1 trillion dollars in the U.S. and I do not want my children to add to that. I was fortunate to have graduated college with a small amount of loans that I was able to pay off in a short period of time. Not having the extravagant amount of loan debt did help me get on my own two feet in the real world. Am I too concerned about my children’s college costs and their future? I am, especially with the rise in tuition prices. Take the necessary steps to position yourself in the most financial manner. If you are interested in following my journey, email subscribe to get alerts of latest posts or follow me on Facebook.