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Paying your kid's tuition may crush your retirement

As students head back to school, parents are reminded of the costly trade-off for helping them obtain a degree: their own retirement savings.

For those paying their children's tuition, about one-third of parents said putting away money for their retirement was the greatest obstacle in saving for their child's education, according to a recent report by E*TRADE. Other hurdles included day-to-day living expenses, paying down debt, housing payments and health care costs, the survey said.

"What we see, overwhelmingly, is that everybody is figuring out what to do when faced with these competing priorities," said Lena Haas, E*TRADE's senior vice president of retirement, investing and savings.

But making sure they have enough money saved for retirement should be their number one long-term goal, she said.

Nearly a third of parents in a separate study by T. Rowe Price admitted they've made the risky choice of tapping their 401(k) plan to pay for their kids' college.

Haas recommends first funding a 401(k) plan to take full advantage of the tax savings and employer match, then contributing to an IRA in order to reap the benefits of tax-deferred savings and compounded growth, and, finally, saving for college.

"In retirement there are no options if you don't save for yourself first," she said.

Eighty-one percent of those polled said if they could give a younger investor advice, it would be to start saving as early as possible, the E*TRADE report said.

To that end, Haas advises parents to teach their children to save for their own college with a Roth IRA for minors, for example.

"They should think about teaching kids responsible financial planning," she said. "That, to me, is an opportunity missed."

In July, E*TRADE polled nearly 1,000 investors who manage at least $10,000 in an online brokerage account.