Conventional college savings plans, such as 529’s, are a good way to save for college tax free. And if you start early and contribute the maximum allowable each year, you can have a substantial sum of money to help pay for tuition, room and board for your college student. However, there are some drawbacks to this method. One, funds have to be used for qualifying education expenses. Should your child choose not attend college, funds would have to be passed on to a family member by changing the beneficiary of the account. If there are no family members to roll over to, and funds are not used for eligible education expenses, they now become subject to taxes and penalties. Another drawback is that if you were to still need to seek financial aid, the assets within a 529 savings plan will count against you in determining your total need.
One alternative worthy of consideration is cash value life insurance. Cash value life insurance is annually renewable life insurance connected to an accumulation account. Everything above the cost of the life insurance policy goes into an account. There are a variety of cash value life insurance options. Some provide a fixed interest rate with no risk to the owner of the policy. Some provide options to invest in mutual funds or market indexes at varying degrees of risk. Either way, the accumulation account provides a potential tax free savings vehicle that can be used for college, or anything else for that matter. And the cash value in a life insurance policy cannot count against you when applying for financial aid. Call the Darin Zier Agency with Farmers Insurance to see if this is a right fit for you. Ph: (303) 978-1770