529 college savings accounts have been popular for ten years now. (See the CollegeBasics article on 529s and its blog entry about 529s.) But, what if your 529 account has lost money in this market? It has happened. Gains in 529s have either been erased or some people have even less now than they contributed. If your children are below 10 years old, you may still be okay, but if your children are in middle school or high school, it is time to reconsider college savings.
College costs are climbing faster than the inflation rate, and this market is not dependable if you are planning on fast gains to cover costs in the next 5 years or less. What should you do?
Some financial planners are recommending that you think about saving for retirement before saving for college at this point. After all, will a college education be enough for your son or daughter to earn enough to support YOU after you retire?
You should first be contributing to your 401K, especially, if it is being matched by employer dollars. You can also contribute to the allowable maximum to Roth IRAs.
Actually, if you qualify for a Roth, that is, your adjusted family gross income is less than $169,000, Roth accounts can benefit in planning for college costs. First, Roth savings are not counted as an asset, even tough 529s are, so when asking for financial aid, Roth savings can mean more aid money. Second, you can take monies out of a Roth account without penalty if you do need that money to help your child through college. Although you pay taxes on growth in your Roth account, you can even avoid that if you are 59 and 1/2. Also, if your son/daughter does not attend college or leaves college before completing a degree, unlike monies in 529s which are designated only for college costs, a Roth account monies can still be used to cushion YOUR retirement.
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