October is National College Funding Month and it just may be a great time to get into the game. There are many options out there, and within those options are even more options. However the hardest part may very well be choosing to take action and make a plan. According to a recent survey…parents with a plan have saved 83% more in their college savings fund ($18,518) than those parents who don’t have a plan ($10,105).
Of the many choices out there from which to choose from, as with most products, they have advantages as well as disadvantages, requiring an evaluation process to “marry” yourself to the proper tool for the assigned plan. Using the term marry may not be overkill, especially when a 529 College Savings Plan (for example) requires any and all funds put into the plan be for “higher education” purposes only. If child #1 doesn’t attend college, perhaps child #2 may, but if neither do, a parent may then be attending college (not again!) to avoid the treatment of the fund’s monies being taxed as income and with a penalty fee added as well.
This by no means indicates that a 529 Plan is a bad choice, just we need to be aware of how AND when to use it. Benefits include tax-deferred earnings, tax-exempt withdrawals, and the ability to be used at most U.S. colleges and universities. Other drawbacks are similar to those of 401k’s…you can only use those funds offered in the particular plan you choose, there are management fees, and of course the funds have risk in that they can lose value.
Of the tools out there, one often overlooked is Cash Value – Dividend Paying -Permanent Life Insurance (CV). Here is a tool that wraps you (and your spouse if chosen) with a layer of life protection to insure the funds are provided (tax-free) for your children to attend college in the event of your passing. With this protection comes a guaranteed Cash Value…compounding at a guaranteed rate and likely (but not guaranteed) addition of dividends from the mutual company you are insured with.
The cash value portion of your policy can be accessed down the road as you see fit, and can be payed back with interest (that is interest you are paying to yourself) if you so choose. The cash value will never quite reach the value of the death benefit (owing to the cost of the insurance itself) and as such, any funds accessed (but not repaid) will be deducted from the benefit at time of payment, still leaving your family with an inheritance.
Unlike the college loan process, where you have to qualify and perhaps co-sign agreements, using the cash value as a source of funds for college expenses can be a no-qualify, no-hassle way to provide needed dollars for any of the related expenses of university, trade programs, technical school, and junior college. Another benefit is that they will not affect your credit-worthiness if in fact loans are still going to be utilized.
Is a Whole Life (CV) policy the best tool available? I think it depends on your situation of course but…I like it as it is an asset that offers protection, guarantees, cash value, and allows you to act as your own bank, and possibly have no college loans payments crushing you for years down the road. Sounds like a win to me. Please be sure to download my planning guide to risk free/guaranteed growth college funding.