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College Planning

Almost every parent has heard of a 529 plan. It can be difficult saving for your child’s college education. The 529 plan provides parents with a beneficial way to put aside money for their child’s future. The 529 plan is a tool for parents that allows tax-free withdrawals as long as the money withdrawn is used for college-related expenses. It can be a convenient and helpful way of allocating funds over an extended period of time.

But what happens to your 529 plan when your child decides not to go to college? Despite our best intentions, no one can know what will happen almost two decades from now. If your child does not go to college, there will be a 10% penalty when you decide to withdraw the money from your 529 plan for a use other than your child’s education.

What happens if the low CD rates outperform your college tuition plan (as they have over the past decade)? You, ironically, end up losing money, rather than saving money.

Most people don’t know that they have options when choosing a savings plan for their child’s education. Furthermore, very few people know that life insurance can be the smartest choice when choosing a college savings plan.

One of the most over-looked solutions to college tuition planning is an Indexed Universal Life Insurance plan. This is a type of life insurance does not just provide death and living benefits. This policy allow allows you to draw on it for a variety of life events. One of the life events that makes an IUL eligible for payout is college tuition.

An IUL can be used for college tuition, which is a little known fact in and of itself. Another fact that is not well known is that the cash drawn from your life insurance policy can be used tax free. The policy holder is able to collect his funds and use them for purposes that are not college related. So, while the intent may have been saving for college tuition at the plan’s inception, the plan will yield the same return whether or not the child decides to go to college.

In essence, the Indexed Universal Life Insurance policy provides flexibility in college savings. There are no strings attached as with other popular college savings plans. The use of the IUL is just another instance that makes apparent the necessity of financial education and independence. The “best plan” for everyone else may not be the best plan for you and for your family. Educating yourself on every possibility and tool available to you enables you to make the best decision for your legacy and the future of your family.

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