College Funding

College Funding:

Higher Priorities and Your Children's College Education – 529 Plans vs Indexed Universal Life 

Every year fresh questions regarding higher education funding comes into focus for a new crop of American parents across the country. Because the price of a university education continues to outpace the rate of inflation. even community college rates have been steadily creeping up, parents and allies are left in a challenging position. 

Higher Priorities QotDay is: What’s the best way to fund my kid's college education? 

Today we're going to explore two different types of accounts – 529 College Plans and Indexed Universal Life Insurance (IUL) – both of which take aim at making saving for a child’s higher education easier, but with a few key differences. We'll look at the pros and cons of each account so you can decide which option best fits your financial goals. 

A 529 Plan, so named for IRS Section 529, is a savings account that features tax-free growth and distributions as incentives towards higher education savings. In order to preserve the tax advantages of a 529 Plan, withdrawn funds must be spent on qualified 529 expenses and an unused account must be passed to another blood relative to avoid being taxed as income, +10% additional in federal tax. Although anyone may contribute to these accounts each State has its own way of handling taxes related to out-of-state contributions.  

Indexed Universal Life (IUL) accounts also draw their foundational attributes from the IRS, Section 7702 to be specific, and they similarly offer the benefits of tax-free growth and distribution. Taking optional distributions from your IUL, the HOW matters more than WHY and there are no tax implications regardless of educational institution or if your child opts out of going to college altogether. 

The rules that govern the funding of these accounts have similarities that favor the Early planner, but both have workarounds that benefit budget conscious parents. 

Click here to schedule time for a solutions-based discussion today! 

--
Sincerely,
Damaris R. Johnson
Independent Agent
c. 562.233.1481