The summer season brings many things to our existence – family picnics, fireworks, BBQ’s, vacations, and college. Though college is a noble aspiration and we want our kids to attend, it is often accompanied with this sincere question: How are we going to pay for it?
According to Sallie Mae, only half of all American families are saving for college. Which means that kids are using financial aid for their entire tuition, or grandparents are stepping in to help cover the cost.
Fidelity Investments actually reported that 53% of grandparents are helping, or planning to help, their grandkids with tuition. The survey also discovered that the average assistance amount was $25,000. Grandparents today are more generous than people thought – maybe even too generous. Fidelity also found that 55% of grandparents were very worried about saving for their own retirement. (CNBC)
It’s a bit surprising that grandparents today are okay with helping their children’s kids pay for college rather than prepare for their own retirement, but at the same time, college tuition and student loan debt have reached record highs. In 2002 the average student loan debt was $21, 736, and by 2012 it rose to $27,910. Grandparents want to sacrifice for their grandkids though; the data still shows that those with college degrees earn 2x more than those without a degree.
If grandparents, or anyone for that matter, are gifting an undergraduate with money to help foot the higher education bill, they have likely saved into a 529 plan or are savvy to gift tax laws. If not, then Uncle Sam will be sure to collect his share of the college savings by up to half of the total amount saved. 529 plans and gift tax rules create excellent tax shelters while saving for college, but there is a less complicated and more beneficial way to assist with tuition.
A Banking Policy
Instead of using qualified accounts to save (like the 529 plan) or going through your accountant to supply your grandchild or child with a tuition gift, use a banking policy.
A banking policy, also known as whole life insurance, is a savings vehicle for your money that comes with no strings attached, cash value, rate of return, and a death benefit. You want to help someone you love get to college? Use the liquidity from a life insurance policy.
Accessing liquidity from a life insurance policy for anything – buying a house, funding a business, or college tuition – is one of the many reasons why whole life insurance is considered to be an “AND” asset. Once you use your cash value you don’t lose it, you still earn interest! This creates financial velocity and money maximization, which is why we at Paradigm Life refer to whole life as the “AND” asset.
Using your cash value as a financing plan is smart. The rich have been using whole life insurance as a wealth building strategy for hundreds of years. When you use your policy to ‘bank’ you are not losing any opportunity cost, but igniting two fi
Is IBC Better Than the 529 Plans?
The summer season brings many things to our existence – family picnics, fireworks, BBQ’s, vacations, and college. Though college is a noble aspiration and we want our kids to attend, it is often accompanied with this sincere question: How are we going to pay for it?
A 529 Plan Helps with Qualified Education Expenses
According to Sallie Mae, only half of all American families are saving for college. Which means that kids are using financial or federal student aid for their entire tuition, or grandparents are stepping in to help cover the cost.
Fidelity Investments actually reported that 53% of grandparents are helping, or planning to help, their grandkids with tuition. The survey also discovered that the average assistance amount was $25,000. Grandparents today are more generous than people thought – maybe even too generous. Fidelity also found that 55% of grandparents were very worried about saving for their own retirement. (CNBC)
It’s a bit surprising that grandparents today are okay with helping their children’s kids pay for college expenses rather than prepare for their own retirement, but at the same time, college tuition and student loan debt have reached record highs. In 2002 the average student loan debt was $21, 736, and by 2012 it rose to $27,910. Grandparents want to sacrifice for their grandkids though; the data still shows that those with college degrees earn 2x more than those without a degree.
If grandparents, or anyone for that matter, are gifting an undergraduate with money to help foot the higher education bill, they have likely saved into a 529 plan or are savvy to gift tax laws. If not, then Uncle Sam will be sure to collect his share of federal taxes on the college savings by up to half of the total amount saved. 529 plans and gift tax rules create excellent tax shelters while saving for college, but there is a less complicated and more beneficial way to assist with secondary school tuition.
A Banking Policy Can Be Better Than 529 Plans
Instead of an education savings plan using qualified accounts to save (like the 529 plan) or going through your accountant to supply your grandchild or child with a tuition gift, use a banking policy.
A banking policy, also known as whole life insurance, is a savings vehicle for your money that comes with no strings attached, cash value, rate of return, and a death benefit. You want to save money to help someone you love get to college? Use the liquidity from a life insurance policy.
Accessing liquidity from a life insurance policy for anything – buying a house, funding a business, or college tuition – is one of the many reasons why whole life insurance is considered to be an “AND” asset. Once you use your cash value you don’t lose it, you still earn interest! This creates financial velocity and money maximization, which is why we at Paradigm Life refer to whole life as the “AND” asset.
Infinite Banking Concept vs. 529 Plan: Why IBC Might Be the Better Choice
When comparing the Infinite Banking Concept (IBC) and 529 plans, several factors tilt the scale in favor of IBC, especially for those seeking a more versatile and comprehensive financial strategy.
Flexibility and Control
IBC stands out with its unmatched flexibility. Unlike the 529 plan’s focus on only qualified higher education expenses, IBC allows funds to be used for various purposes, offering financial agility in changing circumstances. This flexibility is key for those who value the ability to adapt their financial strategy to different life events.
Tax Advantages
Both IBC and 529 plans are tax-efficient, but IBC potentially offers greater long-term tax benefits. The tax-deferred growth and tax-free policy loans under IBC can be more advantageous than the 529 plan’s educational tax benefits, particularly for those with broader financial goals than educational institutions.
Investment Stability
IBC’s foundation in whole life insurance policies provides a stable and predictable growth environment, contrasting with the market-linked risks of 529 plans. This stability is crucial for those who prioritize a risk-averse approach to financial planning.
Estate Planning and Legacy Benefits
IBC not only serves as a financial tool but also contributes to estate planning through its death benefit. This aspect is absent in 529 plans, making IBC a more comprehensive choice for long-term legacy planning.
Infinite Banking vs. Education Savings Plans: Choosing IBC for Your Family’s Financial Goals
For Diverse Financial Goals
If your financial objectives extend beyond education savings, IBC is a compelling choice. Its versatility in addressing various financial needs—from retirement planning to emergency funds, and even educational expenses—makes it an all-encompassing financial tool.
Risk Consideration
For those cautious about market volatility and seeking predictable financial growth, IBC’s reliance on whole life insurance offers investment options as a more secure and stable alternative compared 529 college savings plans due to the investment risks inherent in 529 plans.
Long-Term Financial Planning
IBC is designed for long-term financial planning, encompassing not just immediate needs but also estate planning and wealth transfer. This multifaceted approach is particularly valuable for those looking to build a comprehensive financial legacy.
Embracing Whole Life Insurance for Educational and Wealth-Building Goals
Utilizing the cash value of a whole life insurance policy as a financing strategy is not only smart but also a time-tested approach to wealth building. Historically, the affluent have leveraged whole life insurance for hundreds of years as a cornerstone of their wealth accumulation strategies. When you adopt this method to ‘bank’ using your policy, you engage in a financially savvy maneuver that sidesteps opportunity cost. This approach effectively harnesses the dual financial forces of rate of return and actuarial science, setting a foundation for robust financial growth.
The unique aspect of using whole life insurance, especially in the context of preparing for educational expenses, is that it doesn’t force you to choose between saving for education and securing your financial future. It’s an “AND” asset, a rare financial tool that can simultaneously assist in both qualified future tuition expenses and building wealth for both yourself and your student.
For grandparents or parents seeking a less burdensome yet effective way to support their children’s or grandchildren’s education, delving into the realm of whole life insurance is a wise consideration. This approach not only contributes to funding educational goals but also lays down a pathway for long-term wealth accumulation. It stands out as a versatile and powerful asset in your financial toolkit, capable of preparing you and your student for a more secure and prosperous future.
In essence, whole life insurance offers a unique and multifaceted approach to financial planning, blending the benefits of educational savings and wealth building. It’s a strategy that provides peace of mind and financial flexibility, making it an excellent choice for those looking to comprehensively prepare for the future.
FAQ
Q: How does the Infinite Banking Concept (IBC) compare to a 529 Plan for college savings?
A: The IBC, using whole life insurance, offers greater flexibility than a 529 Plan as it isn’t limited to educational expenses. It also provides potential tax benefits and a stable growth environment, which may be more advantageous for long-term financial planning.
Q: What are the benefits of using a whole life insurance policy for college savings?
A: Whole life insurance policies offer a stable investment platform with tax-deferred growth and the ability to borrow against the policy. This can provide a more versatile and secure means of saving for college compared to other savings plans.
Q: Why might whole life insurance be a better choice for long-term financial goals beyond education savings?
A: Whole life insurance policies are not only for education savings but also for broader financial planning, including retirement and estate planning. They offer a holistic approach to financial security, covering various needs and life events.
