ALL AROUND OLD BRIDGE
Paying for
College Michael Vitale 104 Interchange Plaza, Suite 102 Monroe Township, NJ 08831 Cell: 201.306.5988 Office: 609.655.3066 x255 Fax: 609.655.4959 Email: michael@vitaleinsurance.com Website: www.vitaleinsurance.com Summer is here and in full swing! Parents are taking off from work to spend time with their children, and families are taking much-needed vacations. Very few people are thinking about the end of summer and the ensuing trek back to school. For some, the whole “back-to-school” term is accompanied by a lingering thought...”how will I pay for my child’s college tuition?” Parents who would like to pay for their child’s college education have no small feat ahead of them. The cost of most accredited colleges and/or universities has skyrocketed in the past ten years, and is seemingly still on the rise. Since most of us do not have a rich relative to cover the cost, it has become that much more crucial to start planning for your child’s college needs while they are still at a young age. Many of you may have heard of 529 plans - savings plans that have been aimed at assisting with college tuition costs for just over twenty years. They do have enticing perceived qualities... accumulated earnings in a 529 plan are tax-deferred and withdrawals for qualified higher education expenses are tax-exempt. Additionally, the plan beneficiary can be changed from sibling to sibling, should the 1st beneficiary decide to go an alternate route, bypassing the college experience, or having earned a full scholarship. Finally, friends and family can contribute to a
529 plan, giving it another attractive quality. However, despite the positive facets of the 529 plans, there are equally, if not more, significant pitfalls. First of all, take yourself back a few years. September 2008, and the following months, represent one of the largest and widespread market crashes of all time. During that period, countless people lost hundreds of thousands of dollars, through no fault of their own. Many responsible individuals who had wisely “invested” in their children’s futures, through various financial institutions, including 529 plans, found themselves losing more than they ever thought possible. It was an unfair reality. As an example, at that time, if you had a 529 plan for your 13-year old child, valued at $50,000, you would probably have lost about 38% of the value that year...a loss of approximately $19,000. Since most 529 plans often begin with an aggressive allocation process and shift to a more conservative rate over time, you would probably not be able to recoup the $19,000 in a timely manner. Many 529 plans follow a designated path of allocation, sometimes unable to be altered. Could you recover that $19,000 loss in a fairly short timeframe based on your allocation arrangement? Furthermore, if college was only a few years away for your child, you would probably never be able to surpass your $50,000 by the time your child would be heading off to college. Second of all, 529 plans have another significant downfall...the accumulated total will be counted and regarded as income when you (or your child/ children) file financial aid paperwork for college. This will directly affect the way in which you are considered for income-based financial aid. Additionally, there could be a large disparity between the accumulated total in the 529 plan and the amount you would not receive from financial aid. However, as in most cases, there is a solution to this dilemma...Indexed Universal Life Insurance (“IUL”). An IUL policy can provide similar benefits with more options and greater flexibility.
AUGUST 2017
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