The cost of higher education is only going up – 296% for in-state public university tuition and fees to be exact, but that shouldn’t get you down. Saving for college doesn’t need to be a burden. The desire to assist your children with the future cost of their education is an honorable aspiration. Let’s talk about two of your options: the state-sponsored 529 plan and Indexed Universal Life insurance.
Indexed Universal Life:
- No Administrative fees
- No hidden maintenance cost
- Completely flexible
- Tax-Free withdrawals
- Ultimate control
The 529 plan is sponsored through your local Office of the State Treasury and is designed to allow guardians to save for the future cost of college for their dependent(s). The 529 plan permits families to contribute money into an investment account that will cover future college expenses. Yes, it is an investment account. This means that the growth of your account balance is subject to the variability of the stock market.
529 Plan Limitations
There are many restrictions surrounding the 529 plan. Often, universities or state colleges must be pre-selected, program administration fees apply, and this benefit can only be secured if you eventually use your investment money to pay for qualified post-secondary educational expenses. For instance, you can’t take money out of your account to buy a new car, pay for a vacation, or pay down your debt. The 529 plan also restricts your options if the child decides not to attend college, often only allowing a roll over into another future students name.
You also must claim your 529 account on all FASFA applications – significantly limiting your ability to determine your eligibility for federal, state, and college-sponsored financial aid, including grants, educational loans, and work-study programs.
“IUL Plans are for parents who value ultimate flexibility and control“
Indexed Universal Life (IUL) insurance allows for the cash value component to be used to help pay for educational expenses. It also provides a death benefit for your dependent and living benefits that can provide a benefit if they become critically or chronically ill or critically injured. With an IUL plan the death benefit can complete the college savings plan if the wage earner dies. The cash value inside the plan is not defined as an asset for federal financial aid calculations and accumulates tax-deferred. Loans and withdrawals from the plan are taken tax-free when it comes time to pay for educational expenses. Funds in the plan have no restrictions on use, and as long as the policy is sufficiently funded, the cash value can help with multiple goals, including funding the purchase of a vehicle or assisting with off-campus residency – two components that are not authorized inside the 529 plan.
Value of Indexed Universal Life
The plan’s cash value can be used by your child for the school of their choice and are not subject to additional administrative and management fees. If educational plans or goals change, the value can pivot to meet the new need, or pivot as a source of supplemental retirement income. Utilizing an IUL investment strategy as a vehicle for college expenses affords you the comfort of knowing that your child also has access to living benefits in the event they become ill or injured. Not only does an IUL afford you the ultimate flexibility to grant your child the freedom to utilize the funds for their need, it protects your investment principal from the volatility of investing directly in the market.
