College Planning Isn’t Just About How to Pay for College

College Planning Isn’t Just About How to Pay for College

May 24, 2021
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As college costs keep rising, parents are looking for ways to provide funding for their child’s education and determine what institution will prevent them from taking on substantial debt.  One college funding source is utilizing the cash value in an Indexed Universal Life (IUL) Insurance policy.

Unlike 529 college savings plans, IULs can pay for other things and college expenses with no tax consequences through policy loans (Loans will reduce your cash value benefit and death benefit and may be subject to surrender charges.  Unpaid loans are subject to ordinary income tax and, if taken before age 59 1/2, may result in a federal tax penalty).

Deciding how to pay for college is only half of the college planning process. There is a growing trend in college planning where families hire an Independent Education Counselor (IEC) to help plan, execute strategies for the ACT or SAT testing and assist in applying to college in hopes of being accepted.

IECs start working with families as early as the eighth grade if they consider an ivy-league school or groom the child for a scholarship, academics, or sports. The earlier the agreement with the IEC starts, the more expensive the college preplanning costs. However, preplanning costs are not a qualified expense under a 529 plan.

Most families choose to work with an IEC when the child is a high school junior or senior due to a lack of college counseling in high school. IECs help guide families by determining which college is the best value for the profession the child is considering.  For some occupations, graduating from an ivy-league school does lead to higher incomes, but for most graduating from an academically competitive school determines higher earnings.

A second benefit an IEC provides is getting to know the child to help determine which colleges will help the young student succeed and graduate. For students paying for college on their own or using financial aid, the student loan process can be confusing. IECs provide counseling on loan options and assist with loan applications.  Additionally, they work with the student to manage their spending and loan money to avoid the spending problems that students without financial counseling tend to do. 

If you have questions about opening a 529 college savings plan account or utilizing an IUL policy for your child or grandchild, now is a great time to meet with your financial professional. It’s never too late to start saving for college.

 

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.

This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.

Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

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