By David Pitt Associated Press
DES MOINES, Iowa — Parents remain determined to save money for college even in the tough economy, but they’re not always choosing the methods that give them the best bang for their buck.
The nation’s leading college lender Sallie Mae released Tuesday its second annual study of college students and parents conducted by Gallup Inc. It shows 60 percent of parents have saved money for their child’s college education, about the same as a year ago. However, it is surprising that nearly a quarter of all college savings has been set aside in retirement accounts including 401(k)s or individual retirement accounts, said Sarah Ducich, senior vice president for public policy at Sallie Mae.
The typical family saving for college has amassed an average of $28,102 and is projected to have saved $48,367 by the time their child reaches age 18. The problem with relying on retirement accounts is that when money is withdrawn before age 591/2, the accountholder must pay taxes on the funds as well as a 10 percent penalty.
As an alternative, some families are choosing to take out a loan against a 401(k) account. This is also problematic because it removes a portion of the retirement fund, reducing the potential for growth. Also there’s the possibility the loan will need to be repaid quickly if the accountholder changes jobs.
Not all savings is held in retirement accounts. About 21 percent of money set aside for college is in investments and 14 percent sits in general savings accounts.
About 12 percent is held in dedicated college savings 529 accounts.