Financial Products that Fund College Education

Just because you CAN borrow from your 401(k), IRA or Roth IRA for your child’s education, doesn’t mean you SHOULD. The repayment schedule is abysmal. The interest rate is unavoidable. Invading your retirement monies may force you to work longer, lower your lifestyle and force you to maintain a mortgage, instead of paying it off.

Mutual funds and ETFs inside a 529 Plan can be an excellent funding product provided you have a mid term horizon timeline (like ten years) and your financial profile’s risk tolerance is suitable for market volatility. The cost of these products can vary from fund to fund, so full disclosure of all costs (like the expense ratio, charges found in the statement of additional information, and cash drag costs) is essential. Once you’ve researched your funds with your financial adviser you can review using a 529 Plan as a possible funding apparatus.

Non Modified Endowment Life Insurance is a cash value contract that complies with the TAMRA regulations so the cash values accumulate tax deferred and the withdrawals of basis and collateralized policy loans of gain are generated tax-free. There are four types of cash values policies to select from based on your risk tolerance and suitability timeline. If the timeline is ten years or more before distributions, then this type of life insurance use or if it’s purchased as a combination college and retirement funding vehicle can be appropriate. The types of cash value life insurance policies are: participating whole life, universal life, indexed universal life and variable universal life.

Non Qualified Annuities for Older Parents Older than 59^1/2

Some Baby Boomers had their children late in life and could consider an annuity for a conservative approach to investing for college. Certain annuities are available like fixed interest rate annuities that can be held over a long time or simply rolled over for a better rate. Deferred income annuities can be purchased for a future date when the bills for tuition, books, and room and board are due.

Appreciating Equity Lines of Credit for Parents Age 62 and Older

Seniors can use an Appreciating Equity Line of Credit under the HECM for tax-free access of cash without repayment. There are some rules to HECM, but they’re fairly straightforward and should be easy to comply with.

^{John McDonough has contributed to this press release. Segments in part or whole are from his publications.}