College Planning Today: A New Way to Look at It
(PRWEB) June 28, 2013 -- Parents, are you trying to determine how much money will be needed for a child's college costs?
Most parents will think they have a handle on this. Most families plan college expenses based on figures provided by the colleges and universities themselves. These numbers provided are a very loose estimate. This may not include essentials such as textbooks and transportation. How about if your child would like to live off campus in an apartment?
Life Insurance can be a big part of the solution in financial college planning. Having a life insurance policy can help finance his/her future education.
The best way as a parent to help their child pay for college, without either the parents or child going deep into debt with loans, is to start saving early. By early, I mean, the younger, the better.
However, taxes can eat into your college savings plans. Interest is income, and as we all know, income is subject to both Federal and State income tax, (also local income taxes, if you live within a city with income tax). As your college fund grows, the interest will become significant and so will your tax liability.
Your choice now being, either pay the tax with current income or use funds from the college savings. The results being the same – the total amount being paid for savings and taxes are higher than if you were just saving the money without interest.
A sound solution would be life insurance. Life insurance on the child gives parents both a tax shelter and flexibility in the use of the funds. When a child is born, as parents, take out a policy on the child. Let's assume the child is healthy, the parents can purchase a large policy for a low premium payment.
Parents would have the child as the insured and they would be the owner. Also having the parents as the beneficiaries.
As premium payments are made, the cash builds up in the cash value portion of the policy. Also, investment income that is generated by the cash portion of the policy will further increase the balance.
Under current tax laws, investment income that is gained by a life insurance policy is not subject to federal taxes.
When a child goes off to college, the parents, as the owners of the life insurance policy, can keep the money in the life insurance policy or withdraw it and use it for something else. At some point, parents may want to transfer the ownership of the life insurance policy to the child, but there is no requirement stating that do so.
How does it work?
After a thorough needs assessment analysis you can select a life insurance policy that will match your needs. Some basic steps will include:
•Purchase of a permanent policy. This policy will provide death benefit protection and is also a way to accumulate cash value on a tax-deferred basis.
•In the event the unexpected happens and you die, the death benefit can generally be paid without an income tax penalty.
•Without an unexpected death, when the time comes to pay tuition costs, you can access the policy’s cash value through usually tax-free loans or withdrawals.
•One tuition costs are paid, if you wish, you can reposition the policy for other needs.
Tomer Dicturel, Advanced wealth, http://tomerdicturel.info, (646) 996-2049, [email protected]
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