The 529 Plan is the go to plan for college savings plans. It is endorsed by popular financial pundits like:
So, it only makes sense that the 529 plan has caught fire. Let's see why many are enamored with this strategy.
Well, this sounds good. But before you sign you up for such a plan, let's look on the flip side and see if we can poke holes into this strategy.
Start asking questions to see if it will fit your needs in multiple situations.
Once you start asking these sort of questions, you may soon discover...
Remember, you put after tax dollars into the plan. If you don't use the funds according to the plan, you will be taxed on the money coming out. That's double taxation.
The money is being put in one bucket and is earmarked to do one thing: fund college tuition. Although saving for college, or having a plan to pay for it, is important, having your dollar perform one function means that its true potential is contained.
We promote making your dollars do more than one thing: velocitize. That way, you can unleash it's potential for productivity.
When our son was born, we purchased a whole life insurance policy on him. While life insurance for children is used to protect the value life, the owner controls the policy.
While we can use the cash value in the policy to pay for his college instead of incurring college loan debt, the money isn't "earmarked" for that single purpose.
The money is in safe place, liquid, and earning interest. These are a few of the multiple advantages of whole life insurance.
A more tempting alternative is to leverage other people's money (OPM) through a home equity line of credit or federal loans. Then, take a policy loan against the cash value to pay for the HELOC or federal loan. The cash value in his policy can be used as collateral and we can also take advantage of the tax deduction, a great tax saving tip.
All the while, the money stays in the policy and will continue to grow.
529 plans can be tools to use for personal finance help. But, if there is a better method or process, utilize those financial freedom resources. The first step is opening your mind to be aware of them.
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