Many people opt for the 529 plans to save up and pay for college costs for kids and grandkids. However, life insurance might be the better option once you consider the facts. While 529 plans grow tax deferred and feature tax free withdrawals when used to pay for educational expenses, those same benefits can be had from a life insurance policy as well. The problem with 529 plans is they are added as an asset class when determining EFC (estimated family contribution) for financial aid purposes. Life insurance and its cash value are not added as an asset class for financial aid purposes, which confers a very distinct advantage.
The higher the EFC, the less financial aid the student receives. This may or may not matter if your income is so high that the EFC is maxed out anyway. Nonetheless, life insurance doesn’t effect EFC at all. Why? God knows, but those are the rules currently and there’s no sign of that changing any time soon.
Taxes: 529 plans Vs Life Insurance
Here’s another problem with 529 plans. If the student happens to get a full-ride scholarship and doesn’t need the savings from 529 plan, you can still take out the cash and give it to the student or whoever, but it’s taxed if not directly used for educational purchases.
Life insurance shines again because the cash value can be used for whatever the heart desires and no taxes. As you can see, cash value life insurance is very useful outside of just providing a death benefit. This is the reason more and more families are purchasing life insurance to cover everything from college, to retirement savings, long term disability, estate planning, and of course protecting ones family in the event of an untimely death. Get Rich and make your kids even richer with life insurance. For a free quote, click the side or top bar, or simply click right here.
Blue Crush Insurance
