Protect Your Child’s Education
College Savings Plan
Your children’s most important investment
You have the highest hopes for your children and all that they can accomplish in their lives. As such, you want to give them every opportunity to excel that you can, including access to the best education opportunities possible. However, when the time comes for them to pursue post-high school education, will they be able to afford to pay for that experience?
As college tuition and expenses continue to rise dramatically across the country, regardless of where you live or what school your child wants to attend, it is becoming increasingly important to create a college savings plan early enough to protect you and your children from the trap of debt that can burden you both for years to come.
We Can Help
Here at CEG Life Insurance Services, we believe that with proper planning and an appropriate college savings account, your child can be protected from education debt and allowed to focus on what their education will give them instead of what it will cost them.
We offer tax-favored college savings plans that will allow you and your children to minimize or eliminate debt that can result from college or other specialized education expenses.
So where should you start?
Different types of college savings plans
There are several tax-favored college savings plans to consider. Of course, we understand that finding the right one for you can be frustrating and that is why we are here to help. The following guide covers the most common and reliable college savings plan options available.
529 Savings Account
A 529 savings account may be the most well-known and popular tax-favored college savings plan option. It is specifically designed to save and pay for eligible college expenses like tuition, books, computers, internet access, and room and board.
- Contributions grow tax-free and contributions can be withdrawn tax-free when used for eligible college expenses
- Annual contribution limit of $15,000
- Allowed to combine 5 years of contributions for a $75,000 initial contribution
- No income limitations for contributing
- Can be transferred to another beneficiary
- Limited investment options and investment management fees
- Can affect financial aid availability
- Penalties and taxes can apply when used for non-college related expenses
Coverdell Education Savings Account
A Coverdell Education Savings Account (ESA) is another college savings plan option that is specifically designed to save and pay for eligible college expenses. It is similar in many ways to a 529 savings account, but there are distinctions between the two plans that are important to understand.
Features of a Coverdell ESA Plan
- Can be used for K-12 expenses with fewer restrictions than a 529 plan
- More investment options than a 529 plan
- Can be set-up and managed without fees
- Can be rolled over to a 529 account
- Annual max contribution limit of $2,000
- No contributions allowed after beneficiary turns 18
- Income limitations for contributing
- Account must be fully withdrawn by the time beneficiary reaches age 30
Roth IRA
A Roth IRA is a tax-favored retirement account where you can contribute your after-tax income, which then grows tax-free. While not specifically designed to be used to save or pay for college expenses, a Roth IRA can be used to do so in a tax-favored way.
- Can withdraw earnings tax-free (after age 59 1/2) and penalty-free to pay for qualified education expenses
- Annual max contribution of $6,000 (prior to age 50)
- More investment options than a 529 plan
- More flexibility to use for other purposes if child doesn’t attend college
- Does not affect financial aid availability
- Income limitations for contributing
- Must wait 5 years for complete access to funds without taxes or penalties
- Can decrease retirement savings if used for college expenses
Cash Value Life Insurance
Like a Roth IRA, a cash value life insurance policy (also referred to as permanent life insurance) is not specifically designed as a college savings plan. However, there are unique features of cash value life insurance that make it another viable and important option to consider and compare with the other mentioned options. A cash value life insurance policy is a whole life insurance plan or a universal life insurance plan that includes an investment feature.
Features of Cash Value Life Insurance
- Can withdraw earnings tax-free and penalty-free to pay for education or any other expense
- Cash value protected from investment losses
- No set annual contribution limits
- No required age limits or waiting period for withdrawals
- Does not affect financial aid availability
- Enhanced tax-free death benefit that can grow over time
- Can take longer for the account to start to grow in value
- Must qualify for insurance and pay costs of insurance
Choosing the best college savings plan for your child’s education can be daunting. The good news is that we can help you. Please contact CEG Life Insurance Services to learn more about these options and to create a college savings plan for your child.
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Additional expert advice to help you with your insurance planning
Is This the Worst Financial Advice Ever? – Entrepreneur
Why following the common advice to buy term life insurance instead of cash value permanent life insurance may ultimately be a bad long-term financial decision.
