No Funding Limits on Tax-Advantaged College Savings?

Yes, It Is Possible

As we move towards the end of another year, many investors are thinking about how they can make the most of their tax-advantaged savings accounts – and for anyone who is assisting children or grandchildren with funding their higher education in the future, this may include college funding plans. One of the most popular of these is the 529 college savings plan.

Unlike IRAs (Individual Retirement Accounts) and employer-sponsored retirement accounts (such as a 401k), there is no set annual maximum amount that can be contributed into a 529 plan. That being said, though, there are certain rules that investors do need to be aware of – particularly if they are considering making a large deposit into a 529 college savings plan for a loved one.

First, because one of the added benefits of contributing to a 529 college savings plan is the annual gift tax exclusion, each child can only receive up to $14,000 (in 2017) in funds from the donor without the donor having to worry about gift taxes.

In this case, however, that $14,000 is inclusive of ALL gifts of cash or property for this year. So, if an investor gifted and / or contributed funds or assets to the donee in other areas besides the 529 college savings plan, these dollar amounts will also need to be considered in the total. And, if that total amount exceeds $14,000, then any of the excess amount needs to be reported when filing the investor’s 2017 taxes. (Here, the amount must be reported on IRS Form 709).


An Alternate – Or Additional – Method of Tax-Advantaged College Savings Contributions

In addition to the 529 plan option, many investors are not aware that there are alternative methods of saving for a child’s future education that can also provide a number of nice tax advantages. One of the most beneficial of these is permanent life insurance.

With a permanent life insurance policy, the money that is contributed to the cash value component is allowed to grow and compound tax-deferred. This, in turn, can provide a method of increasing college savings without regular taxation on these funds year after year.

Even better, unlike with a 529 college savings plan, there is no gift taxation to contend with if the contributions into the life insurance policy exceed the annual gift tax exclusion each year. So, even if the donor contributes more, there is no need to file additional IRS forms at tax time.

In addition, if the unexpected occurs and the donor were to pass away, the life insurance policy will pay out a set amount of death benefit that is free of income taxation. So, this “self-completing” aspect of permanent life insurance can virtually offer a guarantee that the child will have funds for his or her higher education needs, regardless of what occurs down the road.

A college 529 savings plan doesn’t offer that!


Expand Your Clients’ College Savings Options and Your Future Commissions

Offering a variety of products can provide you with the ability to reach for the right financial tools when solving for clients’ needs. But educating your clients on how they can truly benefit when trying to reach their financial goals will make you their go-to advisor – now and in the future.

Join thousands of other insurance professionals who are already educating their clients on using permanent life insurance as an alternate – or even as their sole – source of college savings, while at the same time increasing their own income, and their overall businesses.

Contact us today, toll-free, at 1-800-643-6143 for more information on how you can add this profitable income stream to your book of business.

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Brian J. Kay, Executive Director, Leads4Insurance
921 Port Washington Blvd., Suite # 3 Port Washington, NY 11050
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