Retirement plan decisions made easy
Drill Down: Contribute to a 401k or Build Up a College Savings Account?
This one’s easy: 401k first. There are many reasons.
If your family might qualify for financial aid based on need (rather than based on skills in football or basketball), then consider this. When colleges figure how much financial aid your child will get, they expect you to put all the money in a college savings plan into college expenses. However, you will not be expected to put any of your 401k money into college expenses. So if you fund a 401k, your financial aid will be larger than if you fund a college account.
If that’s not a big enough reason, consider what is better for your child:
- Alan: Money for college is tight, but with summer and part-time jobs, and a student loan, Alan makes it through. After graduation, he gets a job and is on his own. His parents share with him the happy news that they have sufficient resources for their retirement, so the son does not need to worry about them in their old age. In fact, Alan might even receive a bit of inheritance to help his own retirement plans.
- Barbara: College was a financial breeze, thanks to Barbara’s parents funding a college savings plan. She did not have to work while in college. But after graduation, Barbara learned some bad news: her parents did not have enough saved to maintain their lifestyle while retired. She felt an obligation to send money to her parents every month, even while she was raising a family and trying to save for her own retirement.
Would you rather your child be Alan or Barbara? Which would make him or her a better person? Which would build family ties?
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Lesson 1: What the Heck is a 401k, and What’s So Great About It?
» Lesson 2: Contributions to Your 401k
Lesson 3: Investments “Cook Book” Approach
Lesson 4: Investments: How Investments Work
Lesson 5: Loans and Hardship Withdrawals from Your 401k
Lesson 9: Your 401k, Your Other Assets, and Your Life
The 401k ebook is available in text, audio, and video formats. The current selected format is text. You may also switch to the audio or video formats by clicking on the icons at the top of the main lesson page.