Posts Tagged Financial Planning

Tax Implications of Using Life Insurance Cash Value for College Expenses

November 17th, 2017

When considering the use of life insurance as a college savings vehicle, many people think only of the death benefit proceeds, and in turn, they have the belief that someone has to die in order to “benefit” from the plan.

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Using Life Insurance to Save for College?

November 10th, 2017

The Policy Used Can Make a Difference

With the cost of a college education raising rapidly, parents and other loved ones who want to help out with a child’s future college expenses are seeking options. One of those possibilities is using life insurance.

But, while this financial vehicle can provide numerous college savings-related advantages, not all life insurance plans are created equal. So, it is important to ensure that clients who opt to use life insurance for college education costs are going with the proper option for their needs.

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Getting Around the College 529 Plan Spending Limits

November 3rd, 2017

For those who have hopes of a child or grandchild attending college in the future, a 529 college savings plan can be one way to set aside funds in a tax-advantaged manner now, while also using the money tax- and penalty-free for qualified expenses down the road.

But everyone knows that one of the few constants in life is change. So what happens to the money in a 529 college savings plan if the child / beneficiary decides not to pursue higher education in the future?

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Tax-Free Strategies to Save for College Even If the Unexpected Occurs

April 18th, 2017

When most parents and grandparents think about setting aside funds to save for a child’s future college education, they will oftentimes automatically consider using a 529 college savings plan. But this isn’t necessarily the best way to go about ensuring that there will be a certain sum of money available for college expenses.

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Show Clients How Rising College Costs Don’t Have to Cost Them… Even If their Child Doesn’t Qualify for Financial Aid Their Retirement

April 6th, 2017

In addition to saving for retirement, many people who have children (or grandchildren) will also oftentimes set aside at least some amount for future college tuition costs. Over the past decade or so, though, the price tag for higher education has literally skyrocketed.

According to the College Board, the average annual cost of tuition and fees at a public university (for the 2014-2015 school year) was more than $9,100 for students from in the state, and nearly $22,600 for out-of-state attendees.

If considering a private university, the cost is even more, running on average $31,231 (also for the 2014-2015 year). Then, when you add in the cost of housing, books, and meals – and multiply that by four years – you could easily be looking at a six-figure sticker price.

For many, trying to juggle saving for retirement and a child’s college can be overwhelming. And, if life should take an unexpected turn, as it sometimes does, all bets could be off in terms of accumulating anywhere close to what a child needs for future tuition costs.

While many people have turned to “traditional” methods of saving for higher education via options like a 529 plan, these accounts can actually fall short in several areas. For example, even though the money in this type of account is allowed to grow tax-deferred, having a 529 college savings plan could end up hindering a student’s ability to tap into other sources of financial aid.

Money that is in a 529 plan can also be subject to the constant ups and downs of the market. So, while a parent or grandparent may be regularly making contributions, just how much will be available when it is needed is a big unknown.

On top of that, the money that is stored in a 529 college plan is only allowed to be used for what are deemed as “qualified education expenses.” These can include:

  • Tuition
  • Fees
  • Room and board
  • Books

However, access to 529 plan funds is only available without penalty if the child attends an “accredited” U.S. college or university. According to the IRS, an accredited educational institution refers to a “college, university, vocational school, or other post secondary educational institution that is eligible to participate in a student aid program that is run by the U.S. Department of Education.” So, if a particular trade school or another type of unaccredited education option is chosen by the student, they’re out of luck if they want penalty-free access to their 529 savings plan funds.

Likewise, if the child opts not to further his or her education at all, the money from a 529 plan can be taken out of the account – but income tax would be due on the withdrawal. In addition, the parent (or other 529 plan account holder) may also be liable to pay back taxes if state tax deductions were taken over time, in addition to a possible 10% penalty on the plan’s earnings.

There is a better way, though, for parents (or other individuals) to accumulate tax-advantaged funds for a child’s college, while at the same time maintaining much more control, flexibility, and assurance that money will be available to the student – even if the account holder is no longer here. This is by using life insurance.

With the purchase of a permanent life insurance policy – specifically whole and universal life – the policy holder is often provided with guaranteed returns, along with the ability to build up the account on a tax-deferred basis.

In fact, there are actually some life insurance policies that utilize a “tiered” system when providing returns in the cash value component. In this case, the more money that is put in to the policy, the better the rate of return can be.

Unlike the more restrictive 529 plan, should the child decide that a college or university just isn’t for them, the money can remain in the policy’s cash value account and continue its tax-advantaged accumulation.

Plus, if the unexpected should occur and the insured passes away, funds from the policy’s income-tax free death benefit can provide financial assurance that money will still be available for the child’s education.

One of the biggest mistakes clients can make is not looking into alternative sources of funding for a child’s or a grandchild’s further education. Showing people that they have options that can put their future, and that of their family, first can be invaluable, in addition to providing them with security, regardless of what events take place down the road.

Contact us and we will show you the system that thousands of insurance advisors are already using to generate a significant amount of income, while also providing their clients with more flexible higher education funding options.


How Trumpcare Could Impact Other Areas of Insurance and Financial Planning

April 5th, 2017

In early March, President Trump and Congressional Republicans released the American Health Care Act, which was intended to replace the Affordable Care Act (aka Obamacare). Although this plan did not garner enough votes to pass, the GOP aims to continue its promise and bring TrumpCare to fruition one way or another.

While Trump’s plan, like Obamacare, primarily concentrates on health care and related coverage, it could actually have much more of an impact on life insurance and other financial planning aspects than many people think.

In fact, if it is passed, there are several key components to the Trump health care plan that could hit consumers directly in the wallet, either in a positive or a negative way. For example, one of the key changes would be to remove the individual tax on those who don’t purchase health insurance – which would be retroactive to year-end 2015.

This means that, should the Trump plan be approved, those who did not have health insurance coverage in 2016 would not be required to pay the penalty when they file their 2016 income taxes.

Should this be the case, though, it is estimated by the U.S. Congressional Budget Office that roughly 14 million people will cancel their health insurance coverage,1 also eliminating what could be a hefty premium payment for them.

But, even though this could ease the strain on the monthly budget for some consumers, for someone who is already dealing with a major health issue such as cancer or heart disease, it could also mean having to liquidate savings or investments in the future in order to pay medical related bills.

This is particularly the case for someone who endures a long, drawn out illness and who could rack up a significant amount of medical debt – debt that is so high, his or her survivors are not able to pay the bills that come due upon the individual’s death. It could also have a major impact on future expenses. This includes high dollar financial obligations, such as college tuition for a child or grandchild.

Life insurance coverage can offer a solution for the imbalance here. By having funds available that are received free of income taxation, heirs wouldn’t be as likely to fall into long-term financial hardship, even in the event of substantial expenses in the future.

Tuition costs have been on the rise for years, with no end in sight. In fact, according to the National Center for Education Statistics, the average annual cost for undergraduate tuition, fees, room, and board for the 2014-2015 academic year were over $16,100 at public institutions, and nearly $42,000 at private non-profit institutions.2

By placing money in the market to save for future college tuition costs, it’s anyone’s guess how much there will be – if any – at the time the child needs these funds. On top of that, depending on how a traditional college savings plan is set up, the money could be subject to taxation over time and / or at the time of withdrawal, essentially lessening the amount even further.

Using life insurance to ensure higher education costs can provide a solution. In the event of an insured’s death, the policy’s proceeds are received tax free by the named beneficiary. If, however, the insured is alive and well and the policy is still in force, funds from the cash value can be borrowed, tax-free, for college funding needs.

If this loan is not paid back, the insurance company will reduce the amount of the death benefit on the policy. However, that’s not necessarily a concern for those who are using the policy primarily as a college savings vehicle.

As it stands, even if President Trump’s health care plan is given the green light, it won’t likely take effect for some time. Talking with clients and prospects about their options between now and then can help them to put their own plans in place for moving forward.

We’ll show you the system that thousands of other insurance professionals have used to generate a substantial amount of income, while at the same time assuring clients that high ticket expenses will still be paid in the future – regardless of a long list of factors that are out of their control.

 

Sources

  1. “CBO Cost Estimate American Health Care Act,” CBO, March 13, 2017.
  2. National Center for Education Statistics. Fast Facts. (https://nces.ed.gov/fastfacts/display.asp?id=76)

The Importance of Discussing Goals, Expectations and Risk

December 11th, 2014

Delbar’s 20th annual Quantitative Analysis of Investor Behavior Report came out earlier this year. As always, it’s a revealing portrait not only into core statistics of mainstream investors, but also into the foolish mindset of most investors.

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What Google – and Other Search Engines – Can Teach You About Financial and College Planning

June 16th, 2011

At their core, Google and Yahoo are essentially in the same business.

They are both vying for search engine supremacy. That is their No. 1 business goal.

And Google is absolutely trouncing Yahoo. It’s not even close.

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