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NEW YORK Lauren Greutman felt sick.
She and her husband Mark were about $40,000 in debt, and were having trouble paying their monthly bills. As recent homebuyers, the couple from Syracuse, New York, were already underwater on the mortgage and getting by on one income as Lauren focused on being a stay-at-home mom.
"We were in a really bad financial position, and just didn't have the money to make ends meet," remembers Greutman, now 33 and a mom of four.
There was one pot of money just sitting there: Their son's college savings, about $6,500 at the time. That is when they had to make a decision that no parent ever wants to make.
"We had to pull money out of the account, in order to keep the electricity on and pay the water bill," she says. "We thought long and hard about it and felt almost dishonest. But it was either leave it in there, or pay the mortgage and be able to eat."
It is a moral quandary faced by parents in dire financial straits: Treat your kids' college savings - often housed in so-called 529 plans - as a sacred lockbox, or as a ready source of funds that may be tapped when necessary.
Precise figures are not available, since those making 529-plan withdrawals do not have to notify administrators whether the funds are being used for qualified higher education expenses, according to the College Savings Plans Network. That is a matter between the account owner and the Internal Revenue Service.
TIAA-CREF, which administrates many 529 plans for states, estimates that between 10 percent to 20 percent of plan withdrawals are non-qualified and not being used for their intended purpose of covering educational expenses.
It is never a first option to draw college money down early, of course. Private four-year colleges cost an average $30,094 in tuition and fees for 2013/14, according to the College Board. Since that number will presumably rise much more once your toddler graduates from high school, parents need to be stocking those financial cupboards rather than emptying them out.
Joe Hurley, the so-called "529 Guru" and founder of Savingforcollege.com, has a message for stressed-out parents: Don't beat yourselves up about it.
"The plans were designed to give account owners flexible access to their funds," Hurley says. "I imagine parents would feel some guilt. But I don't think they should. After all, it is their money."
PENALTIES ON EARNINGS
Keep in mind, though, that there are often significant financial penalties involved. Lauren Greutman managed to avoid them, since at that time she was using a simple savings account to stash her son's college funds.
With 529 plans, though, it is another story. With non-qualified distributions, in most cases you are looking at a 10 percent penalty on earnings. Withdrawn earnings will also be treated as income on your tax return, and if you took a state tax deduction on the original money, withdrawn contributions often count as income as well.
Not ideal, of course. But if your other option for emergency funds is to raid your own retirement accounts, tapping college savings is a last-ditch avenue to consider. Not only because you do not want to blow up your own nest egg but because it could make relative tax sense. As the saying goes, you can borrow money for college, but not for retirement.
"If you think about it, a parent who has a choice between tapping the 529 and tapping a retirement account might be better off tapping the 529," says James Kinney, a planner with Financial Pathway Advisors in Bridgewater, New Jersey.
If the account is comprised of 30 percent earnings, then only 30 percent would be subject to tax and penalty, Kinney explains. And that compares favorably to a premature distribution from a 401(k) or IRA, where 100 percent of the distribution will be subject to tax plus penalty.
Lauren Greutman's story has a happy ending. She and her husband made a pledge at the time to restock their son's college savings as soon as they were financially able. It is a pledge they kept: Now 8 years old, their son has a healthy $12,000 growing in his account.
She even runs a site about budgeting and frugal living at iamthatlady.com. Still, the wrenching decision to tap college savings certainly was not easy - especially since other family members had contributed to that account as well.
"We tried to take emotion out of it, even though we felt so bad," Greutman says. "Since we didn't have money for groceries at that point, we knew our family would understand."
(Follow us @ReutersMoney or here; Editing by Lauren Young and Lisa Shumaker)