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The Prudent Scholar explores the topic of money and higher education. We look at at big picture and small: both the latest news and the nitty-gritty details of college life that might help you save money and get more value from your educational experience.

April 18, 2011

Don't Spend Your Inheritance

"We're spending our children's inheritance."
~ bumper sticker
Your parents might joke that they are spending your inheritance. They might very well be spending it -- on you.  According to Sallie Mae, 24% of college savers use retirement accounts as college savings vehicles. 

Parents shouldn't tap their retirement savings to put you through school.  Why?  Because your parents will need that money to live on and they are going to need a lot of it. They could live a long, long time. Every dollar they take out for your college education is a dollar they don't have accruing interest to cushion their old age -- and your middle age as a caregiver.

Retirement savings is built on the miracle of compound interest. Compound interest needs time to work, and tapping savings mucks it all up. It reduces interest, which reduces interest, which reduces interest. See the Motley Fool's explanation and illustrations of compound interest.

Prudent scholars don't drain their parents' retirement accounts. 

Further Reading:
"Don't raid an IRA to pay for college" at Investment News
"An Introduction to 529 plans" by the U.S. Securities and Exchange Commission

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