Evaluate financial aid. For students applying for federal financial aid, the saving vehicles their parents use can make a big difference in their aid package. Retirement account balances and the value of the family's primary residence or a family-owned small business are not counted toward the expected family contribution the government judges your family is able to pay for college. But IRA and 401(k) withdrawals are considered income and can affect government calculations. "If you pull out money from retirement accounts, that may reduce your subsequent financial aid package," cautions Tim Higgins, a certified financial planner in a Marlborough, Mass., and author of Pay for College Without Sacrificing Your Retirement: A Guide to Your Financial Future. About 5.64 percent of a 529 plan balance is factored into the amount the family is expected to pay for college, but withdrawals from 529 plans generally don't reduce the student's financial aid package for the following year.
Get your kids involved. Level with your child about how much college costs and your own retirement concerns. "Communicate to them how much the education will cost and how much you, as the parent, are willing to pay and how much they, the student, need to come up with," says Hefty. "The kids that are more actively involved in the financial decisions for their education gain more from the college experience." Make sure you bring up the possibility of student employment, how much their scholarships, grants, and financial aid may cover, and also student loans. If you can't help with immediate college expenses, consider helping your children to pay off their loans in the future or consider giving them a free or low-cost place to live while they attend school or pay off their debts. "The largest gift you can ever give to your child is to never move in with them," says Hefty. "That means you probably need to take care of yourself first."