A More Efficient Way to Save for College than 529 College Savings Plans
The United States has seen college debt reach over 1.2 trillion dollars. That exceeds all outstanding credit card debt in the country. The rising cost of college tuition is an enormous problem, as well as the primary concern; the second is figuring out how we save for college. According to Sallie Mae, only half of American families are saving for college. Fidelity Investments reported that 53% of grandparents are either helping or planning to help their grandchildren with college. The rest of the money for college will come from student financial aid.
The 529 College Savings Plan has been a popular savings vehicle for many families. Money is saved and earnings accumulated in this vehicle and taxes deferred, and withdrawals are exempt from federal income tax when the money is used for “qualified higher education expenses.” Friends and family members can also contribute, and you can change the account beneficiary if the original beneficiary is not going towards college funds. These funds can also be used to pay for university at most universities in the states.
Since the 2000/2001 and 2008/2009 stock market crashes, these plans’ flaws were seriously exposed, and according to the Financial Research Corporation in Boston, money flowing into these plans is down nearly half of their “prerecession heyday in the mid-2000’s.”
Here are some of the major flaws of 529 College Savings Plans:
- There are no guarantees, safety, predictability and control in a 529 College Plan. 529 College Plans are invested into the stock market. Financial Advisors will tell their clients not to try and time the market, but when you save for money in a 529 Plan, you simply hope that the markets are high and performing when withdrawing money for college is necessary. In other words, there are no guarantees, and you never know the amount of money that you’ll have in your plan when you need it.
- Saving for College in a 529 College Savings Plan may penalize your child or beneficiary, as this vehicle has to be reported as assets on a Free Application for Federal Student Aid (FAFSA). This means that your chances for scholarships and financial aid is reduced. Some colleges may even penalize you for money in a 529 College Savings Plan by subtracting 5.6 cents for every dollar. In other words, you’re paying a 5.6% tax on money in a 529 Plan, because you were responsible by saving for college.
- 529 College Savings plans only allow you to access your money for pre-qualified college expenses. If used for other expenses, you are subjected to a federal income tax and a 10% federal tax penalty. Those qualified expenses do not include food, clothes, gasoline or other living expenses. You can change the beneficiary of the 529 Plan if your child does not want to go to college, but what if none of the kids go to school, and you cannot assign your plan to another beneficiary? You have very limited control on making decisions with your own money that you saved.
High cash value whole life insurance policies have become one of the best ways to save and pay for college and a more complete solution for college savings.
Some of the advantages of saving for college in a high cash value whole life insurance policy are:
- Unmatched Guarantees. You have a guaranteed growth percentage for every year of your contract. Your account will never go down in value, and you will know exactly how much money you will have in your policy when your child goes to college. These policies provide safety, control and predictability to parents, who have peace of mind that, no matter what happens in the stock market or economy, money will be there for college. Policy holders as shareholders in a mutual insurance company also earn a dividend within these plans. Although it is not guaranteed, most mutual companies have paid dividends consecutively for over 100 years.So, it’s ultimately your choice: unmatched guarantees with attractive interest rates, dividends and no downside market risk, or a hope-and-pray stock market gamble?
- If you are saving for college in a life insurance policy, you do not have to report the cash value as assets on the This gives you better chances for scholarships and financial aid if needed.
- Your cash value within the policy grows tax-free, and you can access the money immediately without penalties and use it for other expenses besides college If your child does not go to college, no problem; it is your money to control and you can use it as you please.
- There is no contribution limits in high cash value life insurance policies, while many 529 Plans hit their ceiling at around $350,000. Will that be enough to cover the cost of college when your children go to school? Will you have money left over? I personally don’t know, but would like more flexibility and control over my money for either outcome.
- When you take money out of the policy to pay for college, it is done through policy loans that don’t have to be paid back (although it is encouraged). The policy loans are paid from the general account, NOT your cash value. Therefore, your cash value keeps growing in your policy as if you had never taken the policy loans.
- These policies are structured in a way that adds a funding continuation in the event of a disability of the policy owner.
- Because high cash value life insurance is a life insurance product, the policy will bypass probate court and provide a multiple of the account value to the beneficiary or heirs of the policy owner in the case of death.
If you currently have student loans, you can still utilize this vehicle, as many people have. You can use a policy to build up cash value until there is enough cash value to pay off the loans. You can then pay off your student loans and pay back the policy loans while your cash value keeps growing like you never ever touch it.
In researching these products, it really is not a contest. One of the reasons that this strategy has not taken off like a wildfire is because of the “whole life insurance” connotation. This is not your standard whole life insurance policy. Dividend-paying high cash value whole life insurance, structured according to the Infinite Banking Concept philosophy, with a mutual insurance company, have been used for hundreds of years by the wealthiest individuals, families, corporations, banking and financial institutions to build and grow wealth safely and predictably, regardless of what happens in the markets.
It is a very powerful vehicle that can be used to save for college without going broke and sacrificing your retirement and financial health. This strategy also eliminates any surprises in the future and gives you more control over your own money.
Remember, no-one will ever care about your money as much as you do!
Yours in purpose and prosperity,
The information, opinions, and financial data presented are for educational purposes only and are not intended as investment advice. No guarantees are made as to the accuracy of the information provided herein. Situations can change from day to day. Every investor should do their own due-diligence to determine which investments are best for them.
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