| How to Prepare for College and Retirement, Part 1 |
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College and retirement are two of the most costly goals you may ever pursue. But how can you prepare for both at the same time? Whether you're considering college funding and investing for retirement for the first time, or you've been working on these goals for years, remember these important points. Save for your own retirement before saving for your children's college. It's generally a lot easier to use excess retirement funds to pay for your child's college than to use excess college funds to pay for your retirement. Many advisors point out that you have a limited amount of time to save for retirement, while your children will have their entire working lives to pay off their student loans. Perhaps the best gift you can give your children is the assurance that they won't have to support you in your old age. And if you happen to save more than you need for retirement, you can always help your children pay off their student loans. (Meanwhile, your savings will have had more time to grow.) Keep savings for your child in your own name, not in your child's name or in a custodial account, for a better financial aid award. If you're trying to decide whether to keep $1,000 of your child's college money in your name or your child's, look at the effect on college financial aid. One common formula reduces the student's financial aid award by 35 percent ($350 per $1,000) of the money in the student's name. Money in the parents' names will reduce the award by less than 6 percent ($60 per $1,000). Remember that money in custodial accountsUniform Gift to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accountswill be considered the child's in their financial aid calculation. Having the money in your name may mean a bigger financial aid award for your college-bound child. |
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