By David Alemian
The concept of a 529 plan is a good idea. Hey, it’s tax-free savings for your kid’s college education, what’s not to love? Well, here’s the catch – 529 plans come with some risks and pitfalls:
- The money can only be spent on “qualified expenses.” If you spend the money on something that isn’t a qualified expense, there could be taxes and penalties. As every rent painfully knows, college is expensive, and the last thing you need on top of college expenses is trouble with the IRS.
- The money is exposed to market risks. If the market crashes just before your child is about to enter college, you could very well come up short when trying to pay tuition.
- Your child gets a full college scholarship and you don’t need the money for tuition. The next question is what do you do with the 529 plan money? Yes, it could go to pay the tuition for one of your other children, but what if that is not an option?
- Then you have to look at the fees associated with the 529 plan. Remember, the person who set this up for you isn’t doing it for free.
For these reasons alone, you should think twice about saving for college for your children or grandchildren using a 529 plan.
A good alternative is to use a cash value life insurance policy. The money grows tax-deferred, and has none of the risks or pitfalls associated with a 529 plan. If it turns out that you don’t need the money in the life insurance policy for college, the money can be used for anything you wish, like giving your child a good start in life right after college. If the market crashes the money is protected because it is not exposed to market volatility. When applying for student financial aid, the money in a life insurance policy is exempt from any calculations. Overall, when you compare apples to apples, cash value life insurance beats the 529 plan hands-down.
If you know someone with children or grandchildren, please forward this article to them, because there is a high likelihood that they will benefit from this information. For those who are interested and would like to talk with an insurance agent about a plan like this, Lowest Quote Life is an agency that has agents who can answer your questions.
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About David Alemian
Successfully creating affordable retirement plans guaranteed to last a lifetime is a unique, specialty skill. It’s a challenging arena but respected writer David Alemian makes it look easy. Alemian is a leading retirement expert and nationally recognized authority whose expertise is shared via video columns, numerous journals, and talk-shows.
His national recognition results from both revolutionizing and revitalizing how organizations and individuals like you and me plan and save for retirement. Alemian is considered “The Go-To Guy” for creating and implementing absolutely irresistible, lifetime retirement pension programs.
Formerly the host of “It’s About Money” Radio Show, Alemian has also produced and is featured in over 200 financial education videos. Additional content can be found in many well-respected, publications including: MD Magazine, Physician’s Money Digest, Physicians Practice, Journal of Clinical Oncology, Consultant Live, Psychiatric Times, Cancer Network, OB/GYN.net, and The Healthcare Executives Network.
This article reflects the thoughts and opinions of the author and is being provided for educational and informational purposes only. It should not be considered financial or tax advice. Please consult your financial or tax advisor about your situation.