Financing my daughter's college with my 401K

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TimTheEnchanter
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Financing my daughter's college with my 401K

Post by TimTheEnchanter » Fri Jul 12, 2019 11:38 pm

I know this seems absurd, but we have no choice or funds set aside. I have a small business (publishing), and social security fixed income. We also have home equity ($200,000), and my wife has a great future pension through the CA State College System. My 401 K is six figures and not as good as it should be, but I do not need the money YET. It is either this or borrows money which we do not want to do. We make enough to cash flow some of her $30000 housing and tuition but not all. The rest will come from the 401 K ultimately. I know this goes against conventional wisdom, but what else can I do? We can cashflow maybe 60 percent of the College. P.S. We have covered the first two years almost entirely with cash saved...
Last edited by TimTheEnchanter on Fri Jul 12, 2019 11:41 pm, edited 1 time in total.

anil686
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Re: Financing my daughter's college with my 401K

Post by anil686 » Fri Jul 12, 2019 11:40 pm

TimTheEnchanter wrote:
Fri Jul 12, 2019 11:38 pm
I know this seems absurd, but we have no choice or funds set aside. I have a small business (publishing), and social security fixed income. We also have hope equity, and my wife has a great pension through the State College System. My 401 K is six figures and not as good as it should be, but I do not need the money YET. It is either this or borrows money which we do not want to do. We make enough fone cash flow some of her $30000 housing and tuition but not all. The rest will come from the 401 K ultimately. I know this goes against conventional wisdom, but what else can I do? We can cashflow maybe 60 percent of the College. P.S. We have covered the first two years almost entirely with cash saved...
Well this has been posted on this site many times (at least over the past several years). You can borrow for college, you can’t easily borrow for retirement. Sure you do not need the money yet, but you will need the money and need it to compound. Are loans an option for your daughter or any other aid?

HawkeyePierce
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Re: Financing my daughter's college with my 401K

Post by HawkeyePierce » Fri Jul 12, 2019 11:43 pm

Is there a cheaper college available?

I spent a fortune (literally) on my small private liberal arts school and frankly I probably would've been just fine spending 1/4 of that at a state college.

Topic Author
TimTheEnchanter
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Re: Financing my daughter's college with my 401K

Post by TimTheEnchanter » Fri Jul 12, 2019 11:47 pm

anil686 wrote:
Fri Jul 12, 2019 11:40 pm

Well, this has been posted on this site many times (at least over the past several years). You can borrow for college; you can’t easily borrow for retirement. Sure you do not need the money yet, but you will need the money and need it to the compound. Are loans an option for your daughter or any other aid?
Not that I know of. She can get some small amount, but the PEL grant is not an option. Borrowing at %8 is very stupid, IMHO when we have money. My business is my retirement, and I am hoping it will expand and grow. I was never good at compounding money other than making good RE purchases.

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Re: Financing my daughter's college with my 401K

Post by ClaycordJCA » Sat Jul 13, 2019 12:15 am

Why not have your daughter spend two years at the local community college living at home and then transfer? Didn’t hurt me (attorney), my brother (teacher) or my son (CS degree and employed as a programmer after graduating this year with his BS). Now college is paid for and no need to tap the 401k.

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celia
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Re: Financing my daughter's college with my 401K

Post by celia » Sat Jul 13, 2019 12:18 am

Did you apply for college financial aid? Did your daughter apply for any scholarships? Did she get a summer job to pay for her share of expenses?

It seems you haven't planned as well as you should have. You've had about 18 years to get ready for this. You can still apply for financial aid but since this is so close to the new school year, the money might all be earmarked for specific students by now.

5280Tim
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Re: Financing my daughter's college with my 401K

Post by 5280Tim » Sat Jul 13, 2019 12:20 am

I wouldn’t do this. I understand not wanting loans, but it is an opportunity for her to learn about the real world. Everything has a cost and the sooner she can learn it the better. Even if you take out loans it wouldn’t be for all 4 (or 5 or 6) years. It sounds like it would only be for a portion of two years. That’s not that bad.

I have friends who were in this situation and the parents made a similar decision. Upon graduation, the kids promptly went out and bought a brand new car when they got a “real” job. They could’ve easily covered some student loan payments, but the parents delayed retirement a few years instead. It took them a while to grow up financially because their whole life included the bank of dad safety net. They didn’t deal with financial consequences of decisions until they had some significant consumer debt to get rid of.

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LilyFleur
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Re: Financing my daughter's college with my 401K

Post by LilyFleur » Sat Jul 13, 2019 12:31 am

ClaycordJCA wrote:
Sat Jul 13, 2019 12:15 am
Why not have your daughter spend two years at the local community college living at home and then transfer? Didn’t hurt me (attorney), my brother (teacher) or my son (CS degree and employed as a programmer after graduating this year with his BS). Now college is paid for and no need to tap the 401k.
Agree.

College is your child's first adult choice.

One of my children insisted on starting at a four-year university and living on campus. That child has more debt.

My other child went to community college and it took a while, but then applied for financial aid at age 24 and received a ton of it. So that child is at a four-year college now, living at home, and still debt-free.
Last edited by LilyFleur on Sat Jul 13, 2019 3:14 am, edited 1 time in total.

mariezzz
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Re: Financing my daughter's college with my 401K

Post by mariezzz » Sat Jul 13, 2019 1:19 am

Withdrawals from your 401k are treated as income, and possibly penalized. That increases your income, which makes you less eligible for financial aid (grants are what you want). I tell people never to take out unsubsidized federal or private student loans. The max you should take in loans is what is allowed as a subsidized federal (government) loan.

If her grades aren't good enough for her to be getting enough grant money and merit scholarships from schools to cover the vast majority of the cost (with the rest covered by work and no loans other than federal subsidized loans), there's no point in sending her to more expensive private schools. Your daughter should go to a cheaper public school, work during the academic year (20 hours) and full-time or more during summer if she's not in class.

If she's capable, she should take a full course load (16-18 credits, not 12). If she's not capable of that, she should start at community college and build her study skills.

It's not any parent's obligation to pay for an expensive college education when there are community college and state school options. The child also has an obligation to work AND manage their time well so that they can still get good grades. Keep in mind that a GPA between a B to B+ at college is the median grade at most colleges/universities. With most high schools, the median GPA is even higher.

orhkaf
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Re: Financing my daughter's college with my 401K

Post by orhkaf » Sat Jul 13, 2019 1:28 am

I’d avoid touching retirement accounts.

Have her take out the loans and help her pay them off with cash flow when you have the cash. 8% interest on 30k will probably be less than the tax you pay for withdrawing 30k from a 401k, especially if you plan on paying the loan ASAP.

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Re: Financing my daughter's college with my 401K

Post by Grt2bOutdoors » Sat Jul 13, 2019 1:35 am

HawkeyePierce wrote:
Fri Jul 12, 2019 11:43 pm
Is there a cheaper college available?

I spent a fortune (literally) on my small private liberal arts school and frankly I probably would've been just fine spending 1/4 of that at a state college.
State colleges in many states actually cost $30k after accounting for tuition, room and board, books and fees. Spending $30k for college annually is believe it or not, economical when compared to other 4 year options. The only cheaper option may be attending a commuter school and for a good subsection of population that may not be a viable option.

OP - you don’t disclose your age, but if you have more than 10 years to retirement, I’d be inclined to take the difference in loans. While you may not be able to cashflow it today, you may be able to do so over the next 5-10 years, if you so choose to do so. Otherwise, your child will be responsible for them - though I believe to borrow that much you will have to co-sign the loan.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

sd323232
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Re: Financing my daughter's college with my 401K

Post by sd323232 » Sat Jul 13, 2019 3:31 am

TimTheEnchanter wrote:
Fri Jul 12, 2019 11:38 pm
I know this seems absurd, but we have no choice or funds set aside. I have a small business (publishing), and social security fixed income. We also have home equity ($200,000), and my wife has a great future pension through the CA State College System. My 401 K is six figures and not as good as it should be, but I do not need the money YET. It is either this or borrows money which we do not want to do. We make enough to cash flow some of her $30000 housing and tuition but not all. The rest will come from the 401 K ultimately. I know this goes against conventional wisdom, but what else can I do? We can cashflow maybe 60 percent of the College. P.S. We have covered the first two years almost entirely with cash saved...
OP, your mistake is not that you using your 401k to pay for your daughters education, but the fact that she went to college you/she cant afford to pay. Since she already did two years in school, its too late now but dont pay it with your 401k, its bad idea. You got no choice but to take school loans here. This is lesson to rest of us guys, plan for full 4 years ahead.

sd323232
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Re: Financing my daughter's college with my 401K

Post by sd323232 » Sat Jul 13, 2019 3:37 am

ClaycordJCA wrote:
Sat Jul 13, 2019 12:15 am
Why not have your daughter spend two years at the local community college living at home and then transfer? Didn’t hurt me (attorney), my brother (teacher) or my son (CS degree and employed as a programmer after graduating this year with his BS). Now college is paid for and no need to tap the 401k.
ClaycordJCA, best advice here. I am an electrical engineer, 13 years in industry now. Went to community college for 2 years, then 2 years in university, got my 4 year engineering degree. Community college was best decision of my life. I dont understand people sending kids to expensive schools when they can get first 2 years in community college for super cheap price.

theplayer11
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Re: Financing my daughter's college with my 401K

Post by theplayer11 » Sat Jul 13, 2019 5:05 am

horrible idea....

986racer
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Re: Financing my daughter's college with my 401K

Post by 986racer » Sat Jul 13, 2019 5:29 am

I’d go after the home equity before touching 401k

The 8% you are quoting on loans sound like Parent Plus loans. Generally you should be able to find better terms than that. I’m getting inundated with private loan offers for my DD

student
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Re: Financing my daughter's college with my 401K

Post by student » Sat Jul 13, 2019 6:25 am

I will echo what some of the others have said, this is not a good idea. If money is an issue, first go to a local community college for the first two years, then transfer to a state university. It is even better if you have a local state university that she can commute to. She should be able complete her degree for much less. In my state, it would be less than $40,000 for a typical degree covering tuition and books.

Edit: Corrected typos and I am sorry. I did not realize that she has already completed two years, so my suggestion is too late.
Last edited by student on Sat Jul 13, 2019 7:28 am, edited 2 times in total.

onourway
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Re: Financing my daughter's college with my 401K

Post by onourway » Sat Jul 13, 2019 6:57 am

Are you still making 401k/other retirement contributions at this time? If so, that money should be tapped first.

Is your daughter working? Between summers and breaks alone she should be able to earn $5-8k, more if she worked during the school year as well.

Then I’d take the difference in loans. Even at 8% it will not be enough to be a major burden on her and will keep her invested in the outcome of her education and you can use the opportunity of paying off the student loans as a learning opportunity before the siren call of easy credit comes calling.

balbrec2
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Re: Financing my daughter's college with my 401K

Post by balbrec2 » Sat Jul 13, 2019 7:16 am

Absolutely, do not pay for college with your 401k
Other posters here have outlined several reasons why
and have given multiple alternatives.
Given all of this it sounds like you want to go ahead and make this mistake anyway
You will regret it.
Good luck

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teen persuasion
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Re: Financing my daughter's college with my 401K

Post by teen persuasion » Sat Jul 13, 2019 7:18 am

TimTheEnchanter wrote:
Fri Jul 12, 2019 11:38 pm
I know this seems absurd, but we have no choice or funds set aside. I have a small business (publishing), and social security fixed income. We also have home equity ($200,000), and my wife has a great future pension through the CA State College System. My 401 K is six figures and not as good as it should be, but I do not need the money YET. It is either this or borrows money which we do not want to do. We make enough to cash flow some of her $30000 housing and tuition but not all. The rest will come from the 401 K ultimately. I know this goes against conventional wisdom, but what else can I do? We can cashflow maybe 60 percent of the College. P.S. We have covered the first two years almost entirely with cash saved...
OP, help me parse this out - I'm not sure I'm interpreting everything correctly.

Cost of college (tuition + R&B) =$30k/yr
You can cash flow 60%, so can pay for $18k/yr, with gap of $12k/yr
You have cash saved for the rest of the first 2 years, so $24k. (This is where I'm on shaky ground, not sure if that's what you mean. I could also read it as she's completed 2 years, and now you are seeing the gap.)
So you need another $24k to cover the gap for years 3 and 4.

If your child hasn't yet started college, I'd rearrange the savings, dividing over the 4 years evenly. Then you only have a gap of $6k/yr. Your daughter could earn that with a summer job, and perhaps some work during the school year on campus. She could also pursue an RA position for paid housing. Search out less expensive housing and board options - some colleges have many price points, others are one price fits all. Getting an apartment off campus with roommates can be much cheaper than flat room charges, and eliminates the mandatory board charges - it's much less expensive to buy groceries and cook your own food than pay the equivalent of restaurant prices for eating on campus. Better yet, live at home and commute, eliminating altogether the $12-15k annual cost of R&B.

Consider other options like ROTC, applying for every scholarship you can find (large or small), finding earning opportunities while learning. [After completing Calculus, I was offered a position as a math tutor - I could study while waiting for students to possibly drop in to the mathlab. When a new college grant was created, I and many others applied ($2500 to be earned, + a 10% break on tuition). I received one award; the coding work I did lead to full-time work over the summer in the same department, testing incoming freshman, and other spin-off side-gigs.]

HomeStretch
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Re: Financing my daughter's college with my 401K

Post by HomeStretch » Sat Jul 13, 2019 7:33 am

It sounds like your daughter is going into her junior year and tuition/room-and-board is probably due in two weeks.

If that’s the case, you probably don’t have a lot of options to obtain the money for this semester’s bill. A home equity line of credit might be an alternative.

Suggestions for future semesters for you and your daughter to consider:
- she gets year round jobs immediately to help pay for the last two years of school.
- she agrees to repay a portion of whatever loans you take once she’s employed full time after graduation. Document the loan with a notarized promissory note. Maybe her employer will provide student loan repayment assistance as an employee benefit.
- look into an apartment/rented room option for senior year where she doesn’t have to be on the meal plan. Her food costs with cooking can drop easily in half which can be a four-figure savings.
- depending on your income, she can go to the school’s financial aid office and see if there is any assistance aside from high-interest loans that she may be eligible for.

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Re: Financing my daughter's college with my 401K

Post by cherijoh » Sat Jul 13, 2019 7:48 am

TimTheEnchanter wrote:
Fri Jul 12, 2019 11:38 pm
I know this seems absurd, but we have no choice or funds set aside. I have a small business (publishing), and social security fixed income. We also have home equity ($200,000), and my wife has a great future pension through the CA State College System. My 401 K is six figures and not as good as it should be, but I do not need the money YET. It is either this or borrows money which we do not want to do. We make enough to cash flow some of her $30000 housing and tuition but not all. The rest will come from the 401 K ultimately. I know this goes against conventional wisdom, but what else can I do? We can cashflow maybe 60 percent of the College. P.S. We have covered the first two years almost entirely with cash saved...
This is a bad idea! From a practical standpoint, are you aware that there are limits on the maximum loan size and payback period? (I'm pretty sure both of these limits are dictated by the IRS, but you should verify this). IIRC the maximum 401k loan is 50% of vested balance or $50K (whichever is smaller). I also think the maximum payback period is 5 years unless used to purchase a home.

Most posters seem to be assuming that she is a rising freshman, but "we have covered the first two years..." could mean that she is a rising junior and you already paid for the first 2 years of college. Which is it?

finite_difference
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Re: Financing my daughter's college with my 401K

Post by finite_difference » Sat Jul 13, 2019 9:03 am

teen persuasion wrote:
Sat Jul 13, 2019 7:18 am
TimTheEnchanter wrote:
Fri Jul 12, 2019 11:38 pm
I know this seems absurd, but we have no choice or funds set aside. I have a small business (publishing), and social security fixed income. We also have home equity ($200,000), and my wife has a great future pension through the CA State College System. My 401 K is six figures and not as good as it should be, but I do not need the money YET. It is either this or borrows money which we do not want to do. We make enough to cash flow some of her $30000 housing and tuition but not all. The rest will come from the 401 K ultimately. I know this goes against conventional wisdom, but what else can I do? We can cashflow maybe 60 percent of the College. P.S. We have covered the first two years almost entirely with cash saved...
OP, help me parse this out - I'm not sure I'm interpreting everything correctly.

Cost of college (tuition + R&B) =$30k/yr
You can cash flow 60%, so can pay for $18k/yr, with gap of $12k/yr
You have cash saved for the rest of the first 2 years, so $24k. (This is where I'm on shaky ground, not sure if that's what you mean. I could also read it as she's completed 2 years, and now you are seeing the gap.)
So you need another $24k to cover the gap for years 3 and 4.

If your child hasn't yet started college, I'd rearrange the savings, dividing over the 4 years evenly. Then you only have a gap of $6k/yr. Your daughter could earn that with a summer job, and perhaps some work during the school year on campus. She could also pursue an RA position for paid housing. Search out less expensive housing and board options - some colleges have many price points, others are one price fits all. Getting an apartment off campus with roommates can be much cheaper than flat room charges, and eliminates the mandatory board charges - it's much less expensive to buy groceries and cook your own food than pay the equivalent of restaurant prices for eating on campus. Better yet, live at home and commute, eliminating altogether the $12-15k annual cost of R&B.

Consider other options like ROTC, applying for every scholarship you can find (large or small), finding earning opportunities while learning. [After completing Calculus, I was offered a position as a math tutor - I could study while waiting for students to possibly drop in to the mathlab. When a new college grant was created, I and many others applied ($2500 to be earned, + a 10% break on tuition). I received one award; the coding work I did lead to full-time work over the summer in the same department, testing incoming freshman, and other spin-off side-gigs.]
You can also:

A) Have her take out a loan, co-sign it if needed to get the best interest rate, and help pay it off.
B) If money is needed sooner than later, can you take a 401k loan from your 401k? At least this way you can get back your tax-advantaged space. And you’re taking out stock when the market is high (well at least not crashed.)
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

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Tamarind
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Re: Financing my daughter's college with my 401K

Post by Tamarind » Sat Jul 13, 2019 9:13 am

I'd suggest you cash flow what you can, and have her borrow the rest. She will figure out how to live with the loans, and you haven't saved enough for yourselves to be able to afford this. How is she going to feel if you raid your 401k to pay for college, and then she has to start supporting you in retirement?

I strongly suggest you talk to her now so she has a chance to find loans or consider a less expensive school. Your family cannot afford the one you're currently planning for unless she takes loans.

MindBogler
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Re: Financing my daughter's college with my 401K

Post by MindBogler » Sat Jul 13, 2019 9:17 am

sd323232 wrote:
Sat Jul 13, 2019 3:37 am
ClaycordJCA wrote:
Sat Jul 13, 2019 12:15 am
Why not have your daughter spend two years at the local community college living at home and then transfer? Didn’t hurt me (attorney), my brother (teacher) or my son (CS degree and employed as a programmer after graduating this year with his BS). Now college is paid for and no need to tap the 401k.
ClaycordJCA, best advice here. I am an electrical engineer, 13 years in industry now. Went to community college for 2 years, then 2 years in university, got my 4 year engineering degree. Community college was best decision of my life. I dont understand people sending kids to expensive schools when they can get first 2 years in community college for super cheap price.
And some state schools have programs where if you maintain a certain GPA at partner community colleges, they will automatically accept you for years 3-4. It worked for me!

runner540
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Re: Financing my daughter's college with my 401K

Post by runner540 » Sat Jul 13, 2019 9:19 am

Is she working? If she makes $250/week, that makes a big dent. That can be 25 hours at a $10/hr job, or it can be fewer hours babysitting, waiting tables with tips, etc.

Grt2bOutdoors
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Re: Financing my daughter's college with my 401K

Post by Grt2bOutdoors » Sat Jul 13, 2019 9:27 am

runner540 wrote:
Sat Jul 13, 2019 9:19 am
Is she working? If she makes $250/week, that makes a big dent. That can be 25 hours at a $10/hr job, or it can be fewer hours babysitting, waiting tables with tips, etc.
$4K, it could be spending money or the daughter could be pursuing a field where working is not an option.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

runner540
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Re: Financing my daughter's college with my 401K

Post by runner540 » Sat Jul 13, 2019 9:39 am

Grt2bOutdoors wrote:
Sat Jul 13, 2019 9:27 am
runner540 wrote:
Sat Jul 13, 2019 9:19 am
Is she working? If she makes $250/week, that makes a big dent. That can be 25 hours at a $10/hr job, or it can be fewer hours babysitting, waiting tables with tips, etc.
$4K, it could be spending money or the daughter could be pursuing a field where working is not an option.
I was talking about earning at least $1k/month, 12 months a year, which is more than a third of what OP is worried about covering.

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Re: Financing my daughter's college with my 401K

Post by Grt2bOutdoors » Sat Jul 13, 2019 10:08 am

runner540 wrote:
Sat Jul 13, 2019 9:39 am
Grt2bOutdoors wrote:
Sat Jul 13, 2019 9:27 am
runner540 wrote:
Sat Jul 13, 2019 9:19 am
Is she working? If she makes $250/week, that makes a big dent. That can be 25 hours at a $10/hr job, or it can be fewer hours babysitting, waiting tables with tips, etc.
$4K, it could be spending money or the daughter could be pursuing a field where working is not an option.
I was talking about earning at least $1k/month, 12 months a year, which is more than a third of what OP is worried about covering.
If that figure is net, she'll have to earn alot more than $10/hour.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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vineviz
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Re: Financing my daughter's college with my 401K

Post by vineviz » Sat Jul 13, 2019 10:09 am

Tamarind wrote:
Sat Jul 13, 2019 9:13 am
I'd suggest you cash flow what you can, and have her borrow the rest.
I agree, this is the only sensible way forward I see.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

umfan11244
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Re: Financing my daughter's college with my 401K

Post by umfan11244 » Sat Jul 13, 2019 10:15 am

I mean, I'd personally pull a HELOC way before I touched a 401k or any other retirement account for that matter. But the most sensible thing is to try and pay with monthly cash flow, even if it means carrying a small credit card balance. Just my $.02.

HereToLearn
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Re: Financing my daughter's college with my 401K

Post by HereToLearn » Sat Jul 13, 2019 10:48 am

vineviz wrote:
Sat Jul 13, 2019 10:09 am
Tamarind wrote:
Sat Jul 13, 2019 9:13 am
I'd suggest you cash flow what you can, and have her borrow the rest.
I agree, this is the only sensible way forward I see.
Students can only borrow $5500 the first year, increasing by $500/year. Any amount in excess of that is a parent loan.

SchruteB&B
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Re: Financing my daughter's college with my 401K

Post by SchruteB&B » Sat Jul 13, 2019 10:57 am

HereToLearn wrote:
Sat Jul 13, 2019 10:48 am
vineviz wrote:
Sat Jul 13, 2019 10:09 am
Tamarind wrote:
Sat Jul 13, 2019 9:13 am
I'd suggest you cash flow what you can, and have her borrow the rest.
I agree, this is the only sensible way forward I see.
Students can only borrow $5500 the first year, increasing by $500/year. Any amount in excess of that is a parent loan.
This can not be repeated enough. I encounter so many parents who think undergrads can get their own loans. They can’t, beyond the $5500 mentioned above.

ncbill
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Re: Financing my daughter's college with my 401K

Post by ncbill » Sat Jul 13, 2019 11:09 am

Borrow from your home equity before 401k.

Public school?

Joining the state National Guard covers tuition/fees in many states for in-state public schools.

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celia
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Re: Financing my daughter's college with my 401K

Post by celia » Sat Jul 13, 2019 11:21 am

SchruteB&B wrote:
Sat Jul 13, 2019 10:57 am
HereToLearn wrote:
Sat Jul 13, 2019 10:48 am
vineviz wrote:
Sat Jul 13, 2019 10:09 am
Tamarind wrote:
Sat Jul 13, 2019 9:13 am
I'd suggest you cash flow what you can, and have her borrow the rest.
I agree, this is the only sensible way forward I see.
Students can only borrow $5500 the first year, increasing by $500/year. Any amount in excess of that is a parent loan.
This can not be repeated enough. I encounter so many parents who think undergrads can get their own loans. They can’t, beyond the $5500 mentioned above.
What many people do is take another kind of loan AT A HIGHER INTEREST RATE and use it for college. That is a (poor) way to finance college, but it is NOT a student loan. Those loans usually require monthly payments starting right away whereas real student loans have payments deferred while still in college.

cshell2
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Re: Financing my daughter's college with my 401K

Post by cshell2 » Sat Jul 13, 2019 11:25 am

HereToLearn wrote:
Sat Jul 13, 2019 10:48 am
vineviz wrote:
Sat Jul 13, 2019 10:09 am
Tamarind wrote:
Sat Jul 13, 2019 9:13 am
I'd suggest you cash flow what you can, and have her borrow the rest.
I agree, this is the only sensible way forward I see.
Students can only borrow $5500 the first year, increasing by $500/year. Any amount in excess of that is a parent loan.
Well, you can cosign on private student loans. Still on the hook if the student defaults, but it's their loan too.

I'm in no way saying I recommend this route though!

delamer
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Re: Financing my daughter's college with my 401K

Post by delamer » Sat Jul 13, 2019 11:46 am

You haven’t supplied enough details to understand your full financial picture.

For instance, have you already actually paid for two years or do you have enough saved for 2 years?

It sounds like your are already collecting Social Security, so there is no issue with penalties if you withdraw from the 401(k).

Will your wife’s pension and your Social Security cover your retirement expenses? Couples in that position don’t need as robust a 401(k) as those who are heavily reliant on their 401(k)s to cover expenses. That should be a consideration in terms of using your 401(k).

As a first step, your best option is to make use of the loans your daughter can take on her own. They are simply not that onerous and you can help her pay them off to minimize the interest that she pays. (Forgoing interest/dividends on savings is really no different than paying interest on a loan. It all depends in the rates. Wouldn’t you borrow $25,000 at 4% if you knew you could invest it and earn 8%?)

If you daughter takes federal loans in her name that adds about $22,000 to the $60,000 that you’ve saved. So you have $82,000 of the $120,000 you need, assuming she hasn’t started college yet. There is a big difference between taking $38,000 out of a $500,000 401(k) versus a $150,000 401(k).

If you’ve already cashed flowed 2 years, then you’ll need about $49,000 after loans for the remainder. Same issue as above regarding the 401(k).

But a HELOC may be the best option, or even a cashout refi depending in your current interest rate.

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Watty
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Re: Financing my daughter's college with my 401K

Post by Watty » Sat Jul 13, 2019 11:49 am

TimTheEnchanter wrote:
Fri Jul 12, 2019 11:38 pm
I have a small business (publishing), and social security fixed income. We also have home equity ($200,000), and my wife has a great future pension through the CA State College System. My 401 K is six figures and not as good as it should be, but I do not need the money YET.
....
It sounds like you are already collecting Social Security and your savings are already short.

You can't afford to raid your 401k and since you are already in your 60s and collecting Social Security paying off a home equity loan will be hard to do.

Depending on where you live in California then you may also have a large mortage since you only have $200K in home equity.
TimTheEnchanter wrote:
Fri Jul 12, 2019 11:38 pm
...but what else can I do?
The only things I see are;

1) Student loans. If your financial situation improves in the future you can help her pay those off.

2) You and/or your wife can work an additional job to bring in some more income to help pay for the college costs.

Big Dog
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Re: Financing my daughter's college with my 401K

Post by Big Dog » Sat Jul 13, 2019 11:51 am

Bad idea. It's great when you can pay for college out of cash flow, but most people cannot.

Since its too late to pick a cheaper college, Student and ParentPlus loans will be the way to go.

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TimTheEnchanter
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Re: Financing my daughter's college with my 401K

Post by TimTheEnchanter » Sat Jul 13, 2019 11:03 pm

delamer wrote:
Sat Jul 13, 2019 11:46 am
You haven’t supplied enough details to understand your full financial picture.

For instance, have you already actually paid for two years or do you have enough saved for 2 years?

It sounds like your are already collecting Social Security, so there is no issue with penalties if you withdraw from the 401(k).

Will your wife’s pension and your Social Security cover your retirement expenses? Couples in that position don’t need as robust a 401(k) as those who are heavily reliant on their 401(k)s to cover expenses. That should be a consideration in terms of using your 401(k).

As a first step, your best option is to make use of the loans your daughter can take on her own. They are simply not that onerous and you can help her pay them off to minimize the interest that she pays. (Forgoing interest/dividends on savings is really no different than paying interest on a loan. It all depends in the rates. Wouldn’t you borrow $25,000 at 4% if you knew you could invest it and earn 8%?)

If you daughter takes federal loans in her name that adds about $22,000 to the $60,000 that you’ve saved. So you have $82,000 of the $120,000 you need, assuming she hasn’t started college yet. There is a big difference between taking $38,000 out of a $500,000 401(k) versus a $150,000 401(k).

If you’ve already cashed flowed 2 years, then you’ll need about $49,000 after loans for the remainder. Same issue as above regarding the 401(k).

But a HELOC may be the best option, or even a cashout refi depending in your current interest rate.
Yes we pretty much cash flow two years ($60k), but the other two are questionable. She (my daughter) will take it. a loan but not the whole $120000

holycow007
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Re: Financing my daughter's college with my 401K

Post by holycow007 » Sat Jul 13, 2019 11:14 pm

OP,

As many have suggested Cashflow the 72K over next 2 years
Have her borrow the 48K or go with part-time job. hopefully a costco nearby. I see my costco board that has quite a few students. Reasonably safer & predictable job than babysitting
Let her deal with it for a while.
You can always pay in future as a gift if your situation is good.
Last edited by holycow007 on Sat Jul 13, 2019 11:20 pm, edited 1 time in total.

InMyDreams
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Re: Financing my daughter's college with my 401K

Post by InMyDreams » Sat Jul 13, 2019 11:17 pm

It may not be able to help much, but this is one of the organizations that is "outside the box" of financial assistance:

https://members.peointernational.org/peo-projects

and the local California Chapter's assistance:
https://www.peocalifornia.org/

Usually they are not mutually exclusive, meaning that you/she may apply for more than one scholarship. The loan money (ELF) is pretty cheap, but does require two co-signers.

Surely the Financial Aid office knows of other non-FAFSA based scholarships.

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BogleFanGal
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Re: Financing my daughter's college with my 401K

Post by BogleFanGal » Sun Jul 14, 2019 11:10 am

LilyFleur wrote:
Sat Jul 13, 2019 12:31 am
ClaycordJCA wrote:
Sat Jul 13, 2019 12:15 am
Why not have your daughter spend two years at the local community college living at home and then transfer? Didn’t hurt me (attorney), my brother (teacher) or my son (CS degree and employed as a programmer after graduating this year with his BS). Now college is paid for and no need to tap the 401k.
Agree.

College is your child's first adult choice.

One of my children insisted on starting at a four-year university and living on campus. That child has more debt.

My other child went to community college and it took a while, but then applied for financial aid at age 24 and received a ton of it. So that child is at a four-year college now, living at home, and still debt-free.
Worked for me too - my parents couldn't afford a full state or private college degree. But they did have the money to send me to community college first, along with some earnings from a part time job I worked. I actually ended up changing majors - as many kids do - before transferring for last 2 years to state university and graduating with my bachelor's. Would have been a big waste of money doing that at full 4-year tuition rates.

In my opinion, community college is THE #1 education value in this country and vastly underrated.

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teen persuasion
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Re: Financing my daughter's college with my 401K

Post by teen persuasion » Sun Jul 14, 2019 11:23 am

TimTheEnchanter wrote:
Fri Jul 12, 2019 11:38 pm
I know this seems absurd, but we have no choice or funds set aside. I have a small business (publishing), and social security fixed income. We also have home equity ($200,000), and my wife has a great future pension through the CA State College System. My 401 K is six figures and not as good as it should be, but I do not need the money YET. It is either this or borrows money which we do not want to do. We make enough to cash flow some of her $30000 housing and tuition but not all. The rest will come from the 401 K ultimately. I know this goes against conventional wisdom, but what else can I do? We can cashflow maybe 60 percent of the College. P.S. We have covered the first two years almost entirely with cash saved...
If your wife is an employee of the CA State College System, is there free or reduced tuition for the employee's dependents?

Point
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Re: Financing my daughter's college with my 401K

Post by Point » Sun Jul 14, 2019 11:28 am

You won’t be helping either your child or yourself going into more debt.

Why not community college and transfer to a local state college?

Live at home, work. Exit college with no debt.

Then they can work at a company which will help cover graduate degree.

Needs vs wants...

Also, give some consideration to fully online: https://www.edsmart.org/open-admission-colleges-online/
Last edited by Point on Sun Jul 14, 2019 1:29 pm, edited 1 time in total.

ChinchillaWhiplash
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Re: Financing my daughter's college with my 401K

Post by ChinchillaWhiplash » Sun Jul 14, 2019 11:47 am

Does the univeristy offer a work study program? That would help her earn some $s while in school. Also, apply for scholarships before each semester. Lots of $s up for grabs. Lots of smaller ones get looked over. Take the time to apply and it might reward her with a few $s. Live off campus and share a place with other students. Have her take a semester or 2 off and work to save $s. Lots of ways to save on expenses.

Traveler
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Re: Financing my daughter's college with my 401K

Post by Traveler » Sun Jul 14, 2019 12:29 pm

She needs to find a less expensive school to attend, preferably one that allows her to live at home. There is no way I would take a 401K loan to pay for school.

rj342
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Re: Financing my daughter's college with my 401K

Post by rj342 » Sun Jul 14, 2019 1:18 pm

With the amount per year you can already cover for her, I think the notion that you have some serious moral obligation to pay for *all* of it, with her contributing little or none is nonsense.
She should borrow what she can under the federal program. Working summers at least would help (many other posters overestimate what can be earned that way. Obamacare etc mean part timers typically capped at under 30 hours week.
A federal Parent PLUS loan would at least have a lower interest rate, and would not have to be paid on while still in school, although you would likely not get deferred interest.
Avoid tapping 401k, or even borrowing against it, like the plague.
I did not notice if her college is within commuting distance from home or not. If it is, she she should just live at home. If shes already been living on campus first then she should already have her social networks built, both for the fun and academic mutual assistance sides, so it should have no serious downside.

FWIW I have a 21yo about to start senior year. He has scholarships covering about 65% of tuition, and borrowing about 5k year. Since he decided on a local state university I did pay for him to stay on campus first year so he would have the college experience. It worked well both in terms if him making those networks, and a lot of gains in maturity and responsibility from being on his own. It was so positive we paid the second year. If he lived at home Junior year he lived at home. He has been able to work enough he is paying to live on campus this last year himself out of pocket (will have a suitemate who is a good friend). By numbers he should live at home another year and save $$, but he 90% already has a job lined up when he graduates (network security, from part time job he already has at a big hospital.)
I did take out two federal Parent Plus loans, already paid one off.
I goofed in my planning and some bad luck.
Started a Covers all ESA way back when, but that was in toilet so long in early 2000s I stopped. I actually taught at the local uni as a full time instructor a few years, where he would get half tuition free, but career said MoveOn. Lost that job when finally paying quite well for this area right as he finished HS. But we've made it work.

sawhorse
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Re: Financing my daughter's college with my 401K

Post by sawhorse » Sun Jul 14, 2019 1:48 pm

Big Dog wrote:
Sat Jul 13, 2019 11:51 am
Bad idea. It's great when you can pay for college out of cash flow, but most people cannot.

Since its too late to pick a cheaper college, Student and ParentPlus loans will be the way to go.
Parent PLUS loans are an even worse idea than raiding the 401k. Both ideas are bad.

ChinchillaWhiplash
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Re: Financing my daughter's college with my 401K

Post by ChinchillaWhiplash » Sun Jul 14, 2019 1:58 pm

Parent Plus loan rate was 7.60% last I checked. In the parent's name and parent stuck with it until death. Not a good idea

Big Dog
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Re: Financing my daughter's college with my 401K

Post by Big Dog » Sun Jul 14, 2019 2:00 pm

sawhorse wrote:
Sun Jul 14, 2019 1:48 pm
Big Dog wrote:
Sat Jul 13, 2019 11:51 am
Bad idea. It's great when you can pay for college out of cash flow, but most people cannot.

Since its too late to pick a cheaper college, Student and ParentPlus loans will be the way to go.
Parent PLUS loans are an even worse idea than raiding the 401k. Both ideas are bad.
We'll have to agree to disagree. The OP can cash flow the P-Plus loans pretty quickly. To me, that is better than raiding the 401k.

Definitely not the ideal -- which is to pick a less expensive college -- but OP has shown no interest in that idea. The public UC is $36k/yr instate. The Cal States are much cheaper, and mom might even be eligible for a faculty-brat discount, but OP didn't ask us to consider that option either.

So the real question is, 'what is teh best of bad alternatives?'
Last edited by Big Dog on Sun Jul 14, 2019 2:01 pm, edited 1 time in total.

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