Dear Mr. Dad: Our son just turned 8 and my husband and I have been talking about how we’re going to pay for his college education. We really don’t have a plan. I say that we should take the money out of our retirement accounts, but my husband says we shouldn’t. We’re both feeling completely overwhelmed by the whole college tuition thing. Who’s right?

A: Congratulations! It’s great that you’re having this discussion right now—too many parents put the whole thing off until it’s almost too late. And you’re not alone in feeling overwhelmed. In fact, a recent report called “How America Saves for College 2013” (produced by Sallie Mae, the country’s largest education financial services company) asked parents to describe their feelings about saving for college. The top answers were overwhelmed, annoyed, frustrated, and scared.

As far as who’s right, there is no single answer that’s going to work for every family. That said, I think your husband is closer to the mark—sacrificing your own financial future to pay for your son’s education is a very expensive gamble. There are a number of reasons for this:

First, money you take out of your retirement accounts will count as income and is taxable (plus there could be penalties if you make withdrawals before you’re 59 ½). Second, because your income will be higher, you’ll be reducing the amount of financial aid your son might have otherwise been able to get. Third, unless you’re 100% sure that your son will be able to support you in your old age, retirement money spent on his education is money you won’t have to pay for your own living expenses when you most need it.

So what should you do? Step number one is to put together a budget. How much do you want to have saved by the time your son starts college? And how much will you have to put aside every year/month/week to make that happen. Be conservative. Half of all families aren’t saving anything at all—up from 40 percent in 2010. On average, those who are saving, say they plan to bank nearly $39,000 per child. But Sallie Mae’s number cruncher discovered that based on current savings rates, these families are on track to actually sock away less than $20,000 by their child’s 18th birthday. To learn more about the Sallie Mae report, Google “How America Pays for College 2013.”

Next, open up a 529 college savings account and set up an automatic investment. Generally speaking, money that you put into a 529 grows tax free as long as withdrawals are used to pay for eligible expenses. Every state has its own plan with slightly different rules. And the IRS’s regs are subject to change anytime. The College Savings Plans Network ( has all the information you need to figure out the plan that’s best for your family. This may sound like a minor detail, but the simple fact of having a 529 plan can make a big difference. The 2012-13 College Savings Survey (conducted by the College Savings Foundation— found that 21% of 529 owners have saved between $5,000 – $10,000, vs. only 11% of those who don’t own a 529. 22% of 529 owners have saved between $10,001 – $25,000 vs. only 9% of those without. And 18% of 529 owners have saved between $25,001 – $50,000 per child, vs. only 4% of those without a 529.

Finally, encourage friends and relatives who might give cash gifts to your children to put the money into your child’s 529 account instead.