With all of the different financial vehicles out there it is often hard to know what is the right choice. A 401(k), be it a traditional or Roth, is one of the best standards to go by. There are no guarantees in finance but a 401(k) is the closest thing to it. And since most employers offer to match your contribution to a certain percent it is the nearest thing out there to getting free money. However as people plan their families and start to grow we often get distracted by providing for our children.
It is a good and noble thing to want the best for your children; every parent knows that sacrifices are going to be made. That is why college savings plans are now becoming a more frequent focus as parents look ahead to the future. It is no secret that that cost of college is going up and unless you want to count on your child securing a valuable scholarship, you want to plan. No one wants their child to walk out of college with a mountain of debt but is it smart to sacrifice your personal future for a possible scenario for your child?
Charles Sizemore doesn’t think so and I personally agree. A saying that I’ve heard is that it is easier for one parent to care for three kids than three kids to care for one parent. Taking care of your personal finances and planning for retirement may sound greedy at first but it is going to be the best thing for your child. The first and best reason is that IRA funds can be withdrawn penalty free if they are being used for education expenses. Yes you will have to pay taxes on the gains but there is no IRS penalty if you take them out. A 529 plan may be more efficient for taxes down the road but that is a possibility that may not happen.
The second reason is that the future is by no means certain. A 529 plan is great only if your kids go to college or can’t find another way to pay for their education. It is hard to know what the next week holds let alone the next decade. Maybe your kid will go to a trade school, join the military, or take another route. By funding your retirement you guarantee a future for yourself while still having flexibility for college.
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