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College Planning - Coverdells, 529s,
And Outside-Of-The-Box Thinking…

If you’ve asked anyone about the best ways to save for your child’s education, you have probably been pointed to either Coverdells or “529″ Plans. Depending upon when and where you did your research, or the person who told you about them, you may have incorrect information about both of these plans.

Why?

Because things change.

For instance, let’s take the 529 plans. At one point, if you put money into an account for a particular state you could only use it if your child went to a school in that state. And not only that, the school had to be a state-run school not a private school.

Flash forward to today. New Section 529 Plans allow you to contribute to the Plan, have the money grow tax-free, and then taken out income-tax-free as long as the money is is used for college tuition, room and board, books, etc. Also, no matter what state plan you put your money into, it can be used to pay for ANY two- or four-year school that qualifies, anywhere in the country — and it can be public or private.

Additionally, the formerly-named “Educational IRAs” — now called “Coverdell Educational Savings Accounts”, have impending contribution limits — shifting the yearly contribution down from $2000 to $500.

Here’s a quick overview of some of the differences, as of today:

Feature	529 Plans	Coverdell Plans
Maximum Contribution limits	no restriction, up to the maximum lifetime contribution	currently $2000/yr, impending change to $500/yr
Investment types	only allow a choice among a number of state run allocation programs	almost any investment inside including stocks, bonds, and mutual funds
Age limitation	no age limit for 529 plans	Balances must be disbursed on qualified education expenses by the time the beneficiary is 30 years old or gifted to another family member below the age of 30 in order to avoid taxes and penalties
Institutions allowed	only qualifed 2 and 4 year colleges	allow withdrawing the money tax free for qualified elementary and secondary school expenses
Income level	does not affect contributions	income level of donor may affect contribution

If saving for your child’s education is one of your concerns — it can be a veritable minefield. Even 529s, which come in a variety of “flavors” — depending on the state — have “gotchas” that could torpedo all your hard work saving for your child’s education. Contact us at 970.744.4626 for a free, no-obligation consultation regarding your situation.

Should You Use A 529 Plan — Or Consider Life Insurance?

Insurance agents — and their companies — are always coming up with additional ways to use life insurance.

And, unless you’ve had an insurance agent extol the virtues of using life insurance for college planning, you’ve probably not even considered using it in this way.

You’ve probably considered, instead, using 529 plans. 529 plans are set up by states and educational institutions so you can set aside income and savings to fund college expenses in the future. In general, you contribute after-tax money, but the money grows and comes out tax-free.

Let’s make no mistake, life insurance can and does provide a number of astonishing benefits when used in asset protection as well as tax, estate and financial planning.

But is using life insurance or college planning appropriate for you?

Maybe. Maybe not.

Let’s take a look at the major advantages of using life insurance as a vehicle for college savings:

• Even if you, or the breadwinner in the family, dies before fully funding for your child’s education, the death benefit will “complete” that funding.
• If your child applies for financial aid, the money in a cash value life insurance policy is not a countable asset.
• Using the right type of life insurance policy — an Indexed Equity Life Policy — the money will not go backwards due to market returns.
• If your child decides not to go to college, the policy can be a terrific tax favorable wealth building/retirement tool for you.
• Even after borrowing from the policy, it will still have cash in it and should grow for years to come. What this means to you is that you can remove money from the policy tax-free later on when the you are in retirement.
• You can use the funds tax-free for other purposes.

Even with all these advantages, however, the amount of money a 529 plan can provide during the college years may actually be better, possibly substantially better. A number of factors enter into the picture, including your age and the age of your child.

It is possible, for example, that you might have your children take out student loans during college, to take advantage of the — generally — very low interest rate. This would give you more leverage and more options, — allowing you to give more money to your child tax-free, later, to pay off the student loans — and then some.

What’s right for you? Coverdells? 529s? Or Life Insurance? It depends on a number of factors. Give us a call and we can talk over your specific situation.

Let’s face it, if you are working out how to pay for your child’s college education, the sooner you start your saving — in whatever way — the better. We can help you make that saving most beneficial for you and your family. Why not call us today at 970.744.4626, or sign up for a free, no-obligation consultation so you can maximize that saving?

NOTE:  Coverdell Education Plans can be self-directed accounts
in which you have checkbook control.  If you have a way to generate
revenue quickly from an investment, this may be an option to consider.
Check out our information on self-directed accounts with checkbook control.