Is This the Best Way to Save for College?
By Scott Weingold
How to successfully save for a child’s college education has become somewhat of a mystery these days. Some of the most common ways to save are to set up either a UTMA/UGMA, which stands for Uniform Transfers to Minor Accounts and Uniform Gifts to Minors Accounts. These types of accounts, which are typically funded with mutual fund’s were sold with the idea that any gains on the plans would be taxed at the child’s rate which is more than likely much lower than their parents tax rate.
Sounds good in theory – but what about the negatives? Once the child whose name is on the account turns 18, the entire account becomes theirs. Parents lose all control over how that money is spent. On top of that, mutual fund performance has been more than lackluster over the past 9 years, causing a huge percentage of UGMA/UTMA accounts to show little to no gain whatsoever. Some even showing substantial losses.
The other most popular way to save for college is through a state sponsored 529 college savings account. These plans allow parents or grandparents to put money into a separate account after-tax that can be used for qualified college expenses tax-free (assuming there is a gain on the money in the account, which a lot of parents are not finding to be the case these days).
Once again this sounds great in theory. But here are the problems parents are running head first into. The mutual funds inside the 529 plans are proving to be highly volatile, extremely risky, and quite simply unreliable. The state of Oregon’s plan lost 36% of their money in less than a year in one of their supposed low-risk accounts. What’s even worse is that most 529 plan restrictions allow for only one account change per year thus forcing families who had already made their account change for year to watch in horror as their child’s college fund continued to lose money. Read more about 529 plans here.
What is a family that wants to save for college and know that the money will be there when they need it to do?
One type of savings plan that should be considered is a properly funded – high cash value permanent life insurance plan. Life insurance? Really? Isn’t permanent life insurance a bad investment? Shouldn’t I just buy term and invest the difference?
Here are three great reasons why you should consider a properly designed high cash value permanent life insurance plan…
- Because your funds are sitting in the cash value account of a life insurance policy, they do not count against you in the calculations for financial aid. These funds are not currently reported as assets on the Free Application for Federal Student Aid (FAFSA). This means that your chances for scholarships and financial aid are greatly increased.
- The money is guaranteed to be there when you need it. There are certain guarantees built into each specially designed life policy that insure that whatever money you put into the plan for college is guaranteed to be there whenever your child is ready to head off to college. (This one reason alone should help you sleep better at night).
- Any withdrawals from a properly designed cash value life plan is tax-free for any use, including college. So whether your child(ren) go to college or not, you can access the money tax-free without any restrictions.
Until next time,
Editor’s Note: Scott Weingold has been ranked one of the top ten college funding advisors in the country. He has co-authored the book, “The Real Secret To Paying For College. The Insider’s Guide To Sending Your Child To College – Without Spending Your Life’s Savings.” Scott also publishes a popular free online newsletter, “College Funding Made Simple” which reveals insider’s tips, methods, and strategies for beating the high cost of college.
Scott is the co-founder and a principal of Ohio-based College Planning Network, LLC, one of the nation’s largest and most reputable college and financial aid servicing centers. CPN is a member of the National Association of College Admission Counseling and the Better Business Bureau.
Scott, along with his college funding advisory team, helps thousands of families throughout the country with their college planning needs and offers a series of free educational teleseminars and workshops on “How To Pay For College Without Going Broke In The Process!” He’s been featured or mentioned in The Philadelphia Inquirer, Voice America with Ron Adams, Crains Cleveland Business, and on Cleveland Connection with James McIntyre.
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