Better Than the 529 Plan

Better Than the 529 Plan
Better Than the 529 Plan

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 financial powers – rate of return and actuarial science.

So, if you’re a grandparent or parent looking for the less painful way to help get your kids to college, look into whole life insurance. It’s the only “AND” asset out there that can assist both yourself and your student build wealth and prepare for the future.

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