As college costs keep rising, parents are looking for ways to provide funding for their child’s education and determine what institution will prevent them from taking on substantial debt. One college funding source is utilizing the cash value in an Indexed Universal Life (IUL) Insurance policy.
Unlike 529 college savings plans, IULs can pay for other things and college expenses with no tax consequences through policy loans (Loans will reduce your cash value benefit and death benefit and may be subject to surrender charges. Unpaid loans are subject to ordinary income tax and, if taken before age 59 1/2, may result in a federal tax penalty).
Deciding how to pay for college is only half of the college planning process. There is a growing trend in college planning where families hire an Independent Education Counselor (IEC) to help plan, execute strategies for the ACT or SAT testing and assist in applying to college in hopes of being accepted.
IECs start working with families as early as the eighth grade if they consider an ivy-league school or groom the child for a scholarship, academics, or sports. The earlier the agreement with the IEC starts, the more expensive the college preplanning costs. However, preplanning costs are not a qualified expense under a 529 plan.
Most families choose to work with an IEC when the child is a high school junior or senior due to a lack of college counseling in high school. IECs help guide families by determining which college is the best value for the profession the child is considering. For some occupations, graduating from an ivy-league school does lead to higher incomes, but for most graduating from an academically competitive school determines higher earnings.
A second benefit an IEC provides is getting to know the child to help determine which colleges will help the young student succeed and graduate. For students paying for college on their own or using financial aid, the student loan process can be confusing. IECs provide counseling on loan options and assist with loan applications. Additionally, they work with the student to manage their spending and loan money to avoid the spending problems that students without financial counseling tend to do.
If you have questions about opening a 529 college savings plan account or utilizing an IUL policy for your child or grandchild, now is a great time to meet with your financial professional. It’s never too late to start saving for college.
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Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
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