Reasons you may not want to save for your children?s college

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It goes against everything we are told, to save for our children's college, starting when they are young. The truth is, it's fiscally irresponsible to spend your retirement money on your children's education. <br><br>We all know college can be very, very expensive. With that, we tell ourselves that we'd better start saving if we want our kids to get an education and a good job. Private colleges currently cost more than $25,000 per year, and even in-state public universities cost more than $12,000 per year. Few people can fork over that kind of money without planning ahead.<br><br>But are we really in deep trouble if we don't have a college fund set up for our 5-year-old? How should we balance saving for college with other financial goals?<br><br>Sometimes, putting money into education funds is not the best use of your money. Here's why:<br><br>?You can't get a loan for retirement<br>?Other financial goals come first. It's heresy to some, but it's true: Your retirement plans are more important than your children's college funds. Your kids can get through college somehow, and you will probably find a way to help them, but it's more important to plan for your retirement. Remember, your kids can get student loans, but there's no such thing as a retirement loan.<br>?If you have to choose between putting money in the kids' college funds and buying a house, buy the house. You may be able to pay tuition with a home-equity loan when the time comes.<br>?Education funds are not always the best way<br><br><br>Typical education savings plans may have drawbacks, such as:<br><br>?Limited investment options. Many education funds pay only interest; others let you invest in the stock market. You can't use the typical education fund to invest directly in real estate or start a small business, for example. Compare the rate of return you expect with what you could receive in alternate investments.<br>?Difficulty predicting future tax benefits. Tax rules change, and it's hard to predict future income levels. Sometimes by the time kids reach college age, their parents' income level is too high for certain tax advantages they'd been counting on.<br>?Financial aid considerations. Students are expected to contribute a higher percentage of their savings to their college education than their parents, so placing money in your child's name may hurt their chances of getting financial aid. You may be better off keeping the money in your name. <br><br>If you want your child to appreciate the investment in their education, working with them in helping pay for their own college can have its benefits. Every year a number of freshmen trek off to college on their parents' hard-saved money, only to spend more time the first few semesters partying than studying. Would they crack the books more if they were paying the bill? Even the most responsible kids seem to do better in college when they help pay for it.<br><br>Students can start at a community college at relatively low cost. In California, for example, the annual cost for tuition, books and supplies at a community college is about $1,500. After two years, students can transfer to a four-year college and graduate with the same degree as students who started there.<br><br>Recent trends, such as taking courses online or getting college credit before graduating from high school, can also help cut the total cost of a degree. <br><br>If you decide to set up education funds for your children, ask your tax professional about the options that will give you the most flexibility and the best after-tax return for your situation.<br><br>Remember to pay attention to your own overall financial picture first, however. It's a good idea to keep some investments accessible for projects such as paying college tuition, but designated college funds are not the only way to go. Whatever your family's needs may be in the future, the best way to be sure you can meet them is to make sure you are on the right track for all your financial goals.

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