How to Save For Your Child’s College Tuition
Paying for college without spending your life’s savings is one of the biggest challenges families face today. Many folks feel they must choose between saving for their children’s education and saving for retirement.
But what if there were a strategy that allowed you to do both? This is one of the advantages of the savings method I call Bank On Yourself. It uses specially designed, super-charged dividend-paying whole life insurance policies that grow by a guaranteed and pre-set amount every year. More than 500,000 Americans are using this method, many to simultaneously save for college and retirement.
In researching hundreds of savings strategies, I found this method be superior to traditional college savings plans, such as 529 college savings plans, UGMAs, UTMAs and student loans, for a number of reasons. Here are seven questions to ask when considering the best way to pay for college:
1. Do you have full control over how and when the money is used?
With limited exceptions, you can only withdraw money that you invest in a 529 plan for eligible college expenses without incurring taxes and penalties. With UGMAs and UTMAs you lose all control the day your child legally becomes an adult. Student loan proceeds are paid directly to the college, so you have no control. The Bank On Yourself method gives you complete control.
2. Can you avoid having the funds count against your kids when they apply for federal student aid?
Student loans and the cash value in a Bank On Yourself plan are not considered as assets. But the money in your 529 plan is counted as your asset, and UGMAs and UTMAs will be treated as your child’s assets. Having these assets will likely penalize your child when they apply for need-based financial aid.
3. If my child earns a full scholarship or decides to be an entrepreneur instead of going to college, can the money be used for non-educational purposes?
The answer is “no” with traditional college savings plans; “yes” with the Bank On Yourself method.
4. Can I use the plan beyond college?
The Bank on Yourself method allows you to use your savings however you choose. With 529 Plans, there’s the “Gotcha” of taxes and penalties. With UGMAs and UTMAs the money is not yours – it’s your children’s, and they can use it for whatever they want. Student loans can extend beyond college, but in a bad way – these loans can haunt the student for decades.
5. Are there tax benefits?
With 529 Plans you may be able to get a state income tax deduction for your contribution, depending on where you live and the plan you choose. If the money is used exclusively for college, the gains in your plan, if there are any, can be tax-free. Gains in UGMAs and UTMAs can be taxed at the minor’s tax rate instead of yours, so that may save you some money. With student loans, there may be a state income tax interest deduction, depending on your income. With the Bank On Yourself method, you can take money at any time, and for any reason, and it’s possible under current tax law to do so with no taxes due.
6. What happens with my plan if I die prematurely?
This is an important question, and unfortunately it’s one most families fail to ask. Among these college savings plans, only the Bank On Yourself method comes with a death benefit that allows your savings plan to “self-complete.”
7. Is growth of money in the plan guaranteed?
In a 529 Plan, absolutely not.
With UGMAs and UTMAs, probably not, since most families put the money at risk in the stock or bonds markets. With student loans, the only thing guaranteed to grow is the debt, if interest payments are deferred. With the Bank On Yourself method, growth of principal is predictable and guaranteed.
This method also offers a great way for grandparents to contribute. My husband and I have done this for our two grandchildren, who are now 10 and 12. The plan we set up for our grandson is projected to provide about $90,000 for his college education expenses by the time he graduates, based on current dividends. Our granddaughter’s plan is projected to have a value of about $125,000. And if either of them decides to become an internet entrepreneur, rather than go to college, the money could be used to help fund their dream.