Parents often find themselves standing at a crossroads of financial planning for their child’s college journey.We have 3 growing boys, so we understand that planning for college is a big deal! College is a big adventure filled with learning, new friends, and discovering passions…but unfortunately the costs of college continue to skyrocket! How do you prepare? The good news…is you have options! You may already know about 529 plans but have you considered that a life insurance policy could be a way to finance as well? Both offer unique advantages and disadvantages when it comes to building financial security. Let’s take a look at the pros and cons of Indexed Universal Life vs.The 529 plan for college planning.
Indexed Universal Life Insurance: The Magic of Growth
Imagine investing your money in a “garden” where your money grows and grows, year after year. That’s the charm of Index Universal Life Insurance. With IUL, a portion of your premium goes into an account linked to market indexes. When the market grows, so does your cash value. The IUL growth ensures that your loved ones receive a death benefit after you die, but another big benefit is that during your life you have flexibility to take loans out against the policy to pay for college or anything else you desire. This is the big benefit of Indexed Universal Life!
Pros of IUL:
- Safe product for investment purposes.
- Flexibility: You can adjust your premium payments and death benefit. You can take loans out against the cash value, tax free to be used for WHATEVER you desire, not just college/schooling.
- Tax Advantages: Growth from the market of your cash value grows tax-free.
Cons of IUL:
- Cost: Has more fees/cost than 529 plans. Also, any loans taken against the policy will be subtracted from the final death benefit payout after you die.
- Growth: often not as much market growth as other options. Growth roughly 3-6%
- Timing: Need to plan on 10+ years before the cash-value can be used.
The 529 Plan: The Wise Savings Account
Now, let’s meet The 529 Plan – your wise and reliable savings account. This plan allows you to stash away money for education, and when the time comes, your child can withdrawal the funds for college expenses. It’s a straightforward approach to ensure a bright educational future, the only caveat is that it must be used for education or you are penalized for withdrawing the money, with the growth often subject to income tax laws.
Pros of 529 Plan:
- Tax-Free Withdrawals: Earnings are tax-free when used for qualified education expenses.
- Cash value grows tax free and mimics growth of market, often higher percentage of growth than a whole/permanent life insurance policy.
- Many states offer tax deduction/credit for contributions to this plan.
Cons of 529 Plan:
- Limited Use: Funds are specific for education expenses.
- Penalties for Non-Education Use: Using funds for non-education purposes may incur penalties. Growth often subject to income tax rates if withdrawn for non-school purposes.
- Considered part of your assets when applying for financial aid: may not be eligible for as much aid.
Indexed Universal Life vs. The 529 Plan: Arlington Greene Agency’s Wisdom
As a small business and industry expert for decades we love helping guide families through their life insurance options. Family means everything. Our family is protected, and we want the same for you. Life insurance products are always changing, you need a guide. Our agents have helped thousands of clients find the right life insurance product that fits both their budget and needs and as life changes so does your insurance needs. We are here for that too. Come be our client for life! You’ll love working with us!
Making the Right Choice
Whether you choose the flexibility of Index Universal Life Insurance or the wise savings account of the 529 Plan, consider your family’s needs and budget. Both products can grow tax free and offer safe investment opportunity. The 529 Plans offer low fees but if not used for education you are at risk for withdraw penalties and subject to income tax laws. A IUL not only offers family protection and a death benefit after you die but during your life you can take out loans against the cash value for college, lavish trips, medical bills…whatever you desire. IUL’s have more fees but the flip side is more flexibility.
So, embark on this adventure with confidence, knowing that Arlington Greene Agency is here to help you script a happily-ever-after for your child’s college dreams!