Kids, you better keep an eye on your college savings funds. According to a recent survey, parents are dipping into the money they’ve set aside for their children to pay household bills.
According to ING DIRECT, nearly one in five parents (18 percent) are dipping into their kids’ college savings accounts to help cover bills and pay off debt. And one in three parents (34 percent) have reduced the contributions they make into their children’s savings accounts.
While this certainly isn’t good news, it also isn’t that surprising. Times are tough out there and parents have to make some difficult choices. Frankly, I would rather see mom and dad take from the college fund than rack up hefty credit card debt or default on their bills and ruin their credit scores.
Having said that, I really do hope parents realize what they’re doing. In a number of years your kids will go off to college and that money you so diligently set aside won’t be there anymore. As a result, you and your child will probably end up taking on considerable amounts of debt to help pay that tuition bill.
And while I think it’s perfectly acceptable to raid the college fund to avoid foreclosure or some other financial catastrophe, I would hate to see parents dipping into the 529 plan just to fund a lifestyle that the family can no longer afford. Better to change your spending habits now and live more modestly.
Finally, if parents do have multiple savings accounts they can dip into, they should try to select one that won’t penalize them. In other words, they should avoid the 529 plan. Money you take out from one of these that doesn’t go toward college expenses is subject to taxes and a 10 percent penalty. If you got a state tax deduction, you’ll also have to report any funds not used for school as recapture income on your state tax return.
Would you use money you saved up for your child’s college education to help pay your bills? Please share your opinions with me.
Confetti image by m00by, CC 2.0.
