https://plus.google.com/108058230137951774420/posts/dSgq3n9T7Pj
Hello World,
The above link is to some additional information on this subject.
The main stream knowledge for college savings is start a 529 for your child. Like I mentioned in my previous blog on the efficiency of 401k's, savings is savings. Savings will always be a helpful thing for what you are trying to do in the future. What is just as important though is where you are saving to get the MOST out of your money. In a perfect world I would want my money in an account that didn't get taxed, had no risk, has unlimited growth potential, had no limits on how much I could fund the account, had no restriction on when I could take money out of the account.
So when it comes to building a portfolio I try to remind my clients that this would be optimal for me and I ask them what their "perfect world" would be.
When you compare the 529 plan to the "perfect world" the question has to be asked, is there something better? The money in a 529 plan can only be used for college, universities, and graduate schools in the United States. If you don't use this money for education there is a taxation and 10% penalty withheld from the earnings. This DOES NOT build a flexible portfolio balance for you and your family. One thing we can always count on is that life will throw us curve-balls and the unexpected will happen. If you are one of the lucky ones where nothing unexpected has happened to you yet, God bless you and you enjoy that while you can! On top of the 529 being in-flexible it is also subject to market risk. Why would you subject something as important as your child's education to market risk? The market has been proven to have steady gains over a 40 year time horizon but most people don't pay for their 40 year old kids to go to college. They pay for their 17-24 year olds to go to college. This leaves a lot of room for error and leaves the door open for your kids to possibly carry some student loan debt.... The knee jerk response to student loan debt is "well, if they have to pay some money for college then I'm fine with that". Let's be real with ourselves about that comment. That is a cop out instead of saying I was too lazy to look for a more efficient alternative.
A very flexible SOLUTION to the above is Whole Life Insurance with a Mutual Company(visuals linked at the top of the blog.) i.e. Guardian Life Insurance
Whole Life insurance can be thought of in two parts: the death benefit, and the cash value within the policy. When planning to use the insurance to fund life events the important piece to pay attention to is the cash value within the policy. Guardian Life has a guaranteed growth within the policy of 4% and that growth is TAX FREE. The lowest dividend payout has actually been 2.5% ABOVE that guaranteed 4%. What does this mean to you? This means that you have the potential to earn 6.5% on your money tax free within you life insurance policy.
If you start this and build it CORRECTLY then you can set yourself up to pull from this cash value income tax free and pay for your kids college. Another beautiful thing about Guardian Whole Life Insurance is that it can be used for anything in your life and can be accessed at any time, unlike the 529 plan.
So just to recap about Whole Life Insurance(with Guardian):
-Your money grows tax free
-If built correctly you can access your money income tax free
-Your money is attached to a death benefit which insures your family more money to pay of debt, pay for college, etc..
-The death benefit is Tax FREE
-Your money grows at a guaranteed 4% and has netted 2.5% higher payouts since 1979
-Your money has more liquidity
-Detached from market risk and solidified a return
With this alternative you would have set yourself up to accomplish sending your kids to college or whatever your goal might be. It is a WAY more efficient strategy than a 529 plan for all of the listed reasons above. As an added bonus, you are insuring that your family is covered should the death of the policy owner occur allowing family enough time to gather themselves and keep moving forward.
david.wallach@peachtreeplanning.com
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