Most employers today offer employees the opportunity to contribute to a tax-qualified retirement plan, which may provide another alternative to help fund a child's education.

For example, 401(k), 403(b) and 403(b)(7) plans typically have low-cost loan provisions. These loans can be used to pay higher education expenses. However, unpaid loan amounts will be taxed as ordinary income and may incur a 10% federal tax penalty if the employee is under age 59 1/2. Another alternative is to withdraw money from a retirement plan. But if you have not reached age 59 1/2, withdrawals may incur a 10% federal tax penalty. Additionally, income taxes are payable on the amount you withdraw.

Most retirement experts encourage plan participants to leave money in their retirement plans to provide income during retirement. But there may be circumstances that warrant using some retirement savings for college funding. Consult your tax advisor about tax implications for early withdrawal.