Do You Know The Best Way To Save For College?
If I can show you a better and safer way to save for your kids college and in the same time set your kid for a worry free retirement, would you take 5 minutes of your time to learn about it?
As you all know, prices for colleges go higher and higher every year. It is a good idea to start saving for college as soon as your baby was born.
Most people think that they can’t afford to save for their child’s college education. They are always postponing it, thinking that next year is going to be better and they will save for education when they make more money. Before you know it, the little kiddos are teenagers and college is only a few short years away. At that point you either save money like crazy, or hope that your kids will qualify for financial aid or worst case scenario, you hope that your kids will come out of college with a really good degree and they will afford to pay back all of the loans they got during college.
Is the 529 plan the best way to save money for college?
It shouldn’t be that hard to save money for your child’s college.
Most of the people that save money for their children’s education will end up saving with a 529 college plan account. I am writing this article to tell you about a different approach that I think will be more beneficial if it is set up correctly.
The 529 plan has several pitfalls
1. 529 plan effect on financial aid
If you have a 529 college savings plan in place, the college will use the money in that 529 first and whatever money that is not covered, the financial aid will. The 529 college plan will be raided to zero before you get to say college.
You will argue…but that’s why I saved the money in a 529 for, right? Well…what if there is a plan that uses the financial aid first?
2. What if your child doesn't want to go to college anymore?
You saved money for 17 or 18 years in a 529 plan thinking that your child would follow in your footsteps, go to the same university you went to, get his masters like you did and work in the same corporate office like you… Yeah, right…keep on wishing 🙂
Few months before he or she gets their High School Diploma, comes the big announcement that they are tired of being pushed to choose a college and they have decided that they will not go to college. Instead they will start painting and sell their art :). Nothing wrong with that, right ? 🙂
What will happen with all of that money saved? You will have to pull that money out of the 529 college plan. You will incur a 10% penalty and also have to pay an income tax on that whole amount.
3. 2008 market crash happens. What will happen to your 529 plan?
It is 2008 and Junior is a senior in High School. You are happy that Junior has chosen the expensive university you wanted him to go to in 2009 and he got accepted.
There is plenty of money in the 529 plan for the first 3 years of that university and you will wing it for the rest of the years. Even if Junior will have to get a loan, is not going to be that bad for him/her. Everything is nice and dandy and you feel very proud about what you have accomplished for Junior. The 2008 market crash happens and you take a 57% loss on all of the savings in the 529
Therein lies the dilemma. One evening, you sit down with Junior to tell him/her the bad news and what are his/her choices. Can you picture yourself in that predicament? You will have to tell him/her that he/she either has to look for a cheaper alternative for college or if he/she still wants go there, he/she will have to pay for all of the loans that he/she will get to finish that university.
You don’t feel that proud of all of the good work you did and all of the sacrifices you made anymore
Index Universal Life insurance as a 529 plan alternative
Now let’s look at the alternative that I propose and how it will solve the pitfalls that a 529 college plan has. Let’s look at using an Indexed Universal Life insurance (IUL) as a saving vehicle for college.
1. Index Universal Life insurance and financial aid
Since IUL is an insurance product it doesn’t have to be disclosed in the application for financial aid. If your child qualifies for financial aid, they will first get the financial aid and then get a zero percent loan from their IUL cash value to use it as they please for their college.
Since this is a loan and not an actual withdrawal from the cash value, it will be paid back whenever your child passes away at old age. The amount in that cash value will continue to accumulate through compound return throughout their life.
Not only that they will have money for college but they will have plenty of money saved for their retirement.
2. What if your child doesn't want to go to college anymore?
Let’s look at the other scenario where your child has decided to be the next Picasso and blow off college.
Since you had a good financial advisor that set the IUL in the parent’s names, the money will stay in that account until your child really needs it … to buy a house or to retire with a pretty large cash value.
If you set the IUL correctly with the child as an insured and not the owner, in the “Picasso” phase they will not be able to run with the accumulated cash value.
Until you decide that your child has become dependable and trustworthy you will not transfer that ownership over.
3. 2008 market crash happens. What will happen with your IUL?
Now, let’s look at at the third scenario where we are in 2008. The market crashed and everybody around you is pulling their hair out.
They lost their savings and look at you wondering why you are not worried. You didn’t lose any money. You will not have a growth for a year or two when the market was in a bear market cycle, but you didn’t lose any money. The floor rate on the IUL policy worked for you.
To structure an IUL for college education, your financial advisor will have to know how to structure it out correctly for all of it to come into place just right for all of the above scenarios.
Also, it has to be structured right just in case one or both parents will pass away before you have transferred ownership to your son/daughter.
If you would like to learn more about how an Index Universal Life Insurance works and if it is a good product for you, click here
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Hegemon Group International, LLC. (HGI) is a marketing company offering a vast array of products and services through a network of independent affiliates. HGI does not provide insurance products, real estate, legal or tax advice. In the USA, insurance products offered through Hegemon Financial Group, LLC (HFG); and in California, insurance products offered through Hegemon Insurance Solutions, LLC (California License #0I0198) – collectively HFG. HFG is licensed in all states and the District of Columbia, except Massachusetts. In Canada, insurance products offered through Hegemon Group International of Canada ULC in the provinces in which it is licensed.
Florin Chris Uta is an independent associate of HGI.
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