IUL for College Savings?

[Ebell]

Would an IUL make sense for a parent who wants to sock away $12K for kid's college fund? I can't see it as making sense since the kid is almost 9 yrs old and will probably head off to college in another 9-10 yrs. Any suggestions on other products with no downside risk?

Plus it wouldn't make sense to try to even split the funds over a 3 year period even with min DB, Max CV. Think I may have to let this one go.

 

[AlTheGud1sRtakn]

It'd be better than not saving the money, but it's not really the logical choice. They'd likely be better off talking to someone who's securities registered about tax-advantaged plans in their state.

If they wanted to do it for the kid to have a nest egg and some paid up life insurance though, that could make a lot of sense. I just wouldn't plan on using it for college as the cost of insurance would likely outweigh the tax advantages. It sounds like they may be doing this with a single premium too, in which case there goes any tax advantages.

 

[axeman462]

Would an IUL make sense for a parent who wants to sock away $12K for kid's college fund? I can't see it as making sense since the kid is almost 9 yrs old and will probably head off to college in another 9-10 yrs. Any suggestions on other products with no downside risk?

Plus it wouldn't make sense to try to even split the funds over a 3 year period even with min DB, Max CV. Think I may have to let this one go.

what about an indexed annuity?

 

[Justin Bilyj]

what about an indexed annuity?

What if the parents are under 59.5 when they withdraw? Bam, 10% penalty...

IUL's max funded for 5-7 years is the minimum amount of time to get an IUL off the ground. 12 grades, 12 years could give the policy time to grow. You have an over-withdrawal rider that can prevent you from running the policy out.

 

[AlTheGud1sRtakn]

what about an indexed annuity?

I still don't think you're getting the tax advantages you would be with whatever plan(s) are available in your state.

In VA for example the 529 plan is the option most people go with, and they generally just use a target date fund to automatically scale back risk as the child approaches college. 529s are great for the client because of the tax advantages and low costs (read: low commissions. If that's all you sell the client you'll be disappointed, I just use them to get my foot in the door and look for other business.) Unless you're in some situation where the child/family NEEDS the insurance/nest egg/annuity and can't afford to fund both that and the college account then I can't imagine an insurance product making more sense. I also can't imagine that scenario happening because you'd have to be overfunding a UL for that plan to work, and if you can overfund a UL you can put that money into a state-approved plan/coverdell plan/CSA.

With that said, if they have enough money I TOTALY see a VUL/IUL on the child and college savings plan making sense. If I had tons of cash and kids (I have neither) I'd take out a VUL and 529 plan on them as soon as they were born, max them out till 18, 1035 the cash in the VUL at that age into another VUL or IUL (assuming the 18 year old is healthy enough for them to get a lower cost of insurance than they had before at this point) so they'd have a *mostly* paid up policy with a ton of cash for the rest of their life.

 

[Ebell]

I don't think there's much I can do for this parent....unless he's ok with allowing the money to sit and grow in an IUL account for longer than 10 years...more preferable if he can wait at least 15-20 years. May have to refer this for a 529.

 

[DHK]

However, a 529 plan is an included asset when applying for college financial aid. 529 plans are titled to the parent, which makes them an included asset.

Life insurance, Non-qualified annuities, and qualified plans are not included assets in the FAFSA equation.

For only $12k... it's not that big of a deal.

 

[AlTheGud1sRtakn]

Here's a handy little chart CHART: Life Insurance vs. 529 Plan for College Savings | Largo Financial Services

 

[pfg1]

IMO, whole life is much better for college savings.

 

[Justin Bilyj]

IMO, whole life is much better for college savings.

do you care to elaborate why?