A Better Way to Fund Your Child's College Education
Is your child's education fund ready or nonexistent? Whether you fall at either end of this spectrum (or somewhere in between), Jeremy Adam has great ideas and solutions for parents on how to fund their child's college education. You will be inspired to take action and work toward making college goals a reality.
Reach out to Jeremy here.
Everyone thinks that their kids are going to get scholarships but you never know. If you want to pay for your kids education, hope for the best and plan for the worst.
As parents, we might not want to assume that our child is going to go to college and that will change the way we save the money.
Do we want our child to have options? That determines where we save it.
How much are we comfortably able to put aside?
How much are you willing to risk?
It doesn’t matter how much you need; it really depends on how much you can actually do.
Even if you aren’t able to fully fund their children’s education, maybe you can do a little and give them a little step up.
Most people save for college in a savings account or bond, a brokerage account, a college savings plan, like a 529 plan.
With a 529 account, you have some risk with fluctuations in the market. You are limited on what you can use the money for.
There can be tax benefits, but not every one qualifies for those
In a savings account, there is very low risk but you don’t make a lot on that investment
Using Life Insurance
There is another way: using life insurance
Take a life insurance policy out on your child. We aren’t thinking about the death benefit.
This is a life insurance policy that has a cash account inside of the life insurance policy to overfund the account.
You pay above and beyond what the normal premium is.
Certain types of life insurance have cash accounts with them (usually whole life or universal policies)
Get the smallest death benefit possible. If the amount due each month was $20, you would pay $100, and have $80 going into this account, where it grows, tax deferred at 6-8% interest. This is compound interest.
In a life insurance policy you don’t lose the money you put in. It can be possible for it not to make as high as you hope, but you have low risk.
Looking at the returns, 6-8% is really good, but the best part is that you can’t lose the money.
One of the benefits is through policy loans. Insurance companies will allow you to take no or low interest loans based on the value that you have built up inside of the life insurance policy.
Usually when you pull money out of a college savings account, you would pay taxes. With life insurance, you take loans, not withdrawals.
That money is not reported as income and you aren’t taxed on it.
You have choices for college and how to fund it.