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Fi n a n c i a l health
Beverly E. Amon, FSA
Top College-Planning Mistakes
That Parents Make
aying for your children’s college educations should ac- • Take care of insurance needs. Too many parents make the
tually be placed quite low on the totem pole of financial mistake of ratcheting back on life or disability income insur-
priorities. Why? There are several reasons for this, such ance in order to save for a child’s education. But if something
as the availability of tools to pay for college, such as financial bad should happen, both college and a family’s most pressing
aid in the forms of student loans, grants and other programs needs may be in jeopardy. If the primary breadwinner isn’t
where loans are forgiven in exchange for public service in working and doesn’t have income coming in for a long period
low-income communities. But ultimately, it’s also because fo- of time, then college is, in many cases, out of the question.
cusing too much on college savings can jeopardize a family’s Parents should save for college while simultaneously retaining
overall financial planning strategy. insurance coverage.
First Things First • Don’t forget IRAs. It’s crucial to continue funding both your
Some family financial needs may be a good thing, like Traditional and Roth IRAs as much as possible. Roth IRAs are
college for other children, or they can be tragic, like long-term particularly good in case parents want to use some portion of
care costs for the parents themselves or medical expenses for those assets for college, because in some circumstances, after
grandparents. Devoting too many resources to college savings five years the contributions into a Roth IRA can be withdrawn
can cut into preparing for inevitabilities such as retirement income tax and penalty-free. Roth IRA earnings taken prior
which—unlike financing college—can’t be funded by loans. to age 59½, may be subject to a 10% federal tax penalty and
Since college costs these days are skyrocketing, how possibly state income taxes.
should parents prioritize their saving and investing plans?
Consider adhering to the following priorities, in this order: While financing all or part of your child’s college educa-
tion is a worthy goal, it’s critical to keep your family’s overall
• Establish an emergency fund. It’s critical to establish an emer- financial picture in mind when making financial planning de-
gency fund with at least six months worth of living expenses. cisions.
This is a key building block for meeting a family’s basic finan-
cial needs. After all, what if you have a job change or you get
Beverly E. Amon, FSA, is a registered representative of Lincoln
laid off? If you don’t have six months worth of expenses to fall
Financial Advisors Corp., a broker/dealer, member SIPC, and
offers investment advisory service through Sagemark Consult-
back on, you can’t go into that 529 account and take money
ing, a division of Lincoln Financial Advisors Corp., a registered
out without a penalty and taxes.
investment advisor,100 Northfield Drive, Suite 200, Wind-
sor, CT 06095, (860) 298-1800. Insurance offered through
• Fully fund employer-sponsored retirement plans. A major
Lincoln affiliates and other fine companies. This information
mistake many people make is reducing contributions to their
should not be construed as legal or tax advice. You may want
to consult a tax advisor regarding this information as it relates
employer-sponsored retirement plan in favor of investments
to your personal circumstances. The content of this material
toward a child’s education. Instead, the priority should be in
was provided to you by Lincoln Financial Advisors for its rep-
making as large a contribution as possible into a 401(k) or resentatives and their clients.
403(b) plan. Doing so not only enables you to take advantage
of any employer match available, it also provides potentially
significant tax advantages.
October 2009
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