College Savings

Bitnis · 10-28-2009, 02:04 AM

What do you generally recommend to your prospects who have an interest in college savings for their children? I'm thinking people who have say 10-18 years to save. They may or may not have a plan in place for themselves yet. Grandparents may or may not participate.

This is a hypothetical so that I can research further. It seems like this one little area of concern is pretty extensive ranging from complex 529 plans to integrating whole life into the parents plan.

Thanks!

LGilmore · 10-28-2009, 02:07 AM

Take some time to see what is eligible for the FASFA. That should help a bit. There are assets you declare for FASFA and there are those you don't.

alphawave2k · 10-28-2009, 08:14 AM

Originally Posted by Bitnis

What do you generally recommend to your prospects who have an interest in college savings for their children? I'm thinking people who have say 10-18 years to save. They may or may not have a plan in place for themselves yet. Grandparents may or may not participate.

This is a hypothetical so that I can research further. It seems like this one little area of concern is pretty extensive ranging from complex 529 plans to integrating whole life into the parents plan.
Thanks!

Take some time to see what is eligible for the FASFA. That should help a bit. There are assets you declare for FASFA and there are those you don't.

Typically all assets within annuity contracts and/or life insurance accumulated cash values are not reportable for FAFSA purposes...from what I understand. Did a short stint with a company out of St Mary, FL (name escapes me at the moment) who sold these insurance/annuity plans with that angle.
Alph-red-o

Bitnis · 10-28-2009, 02:27 PM

So you would see no problem in recommending a fixed annuity for this young couple to save for their children's college education given the circumstances?

arnguy · 10-28-2009, 03:19 PM

Any withdrawals from an annuity prior to age 591/2 are subject to a 10% penalty tax by the IRS. Thus, if they are young I don't think it woukld be a good idea. Annuities are meant to be retirement savings vehicles.

Chazm · 10-28-2009, 03:25 PM

^you can do an IRA annuity and they can use the money to withdrawal for college if its under their name

Edit: I'm not 100% positive about that statement but Im pretty sure...might have to look at the loophole again

Full Throttle · 10-28-2009, 05:08 PM

I would be skeptical about the IRA annuity even if available for one simple reason, opportunity cost. A person can only put so much into their IRA/Roth IRA accounts each year, this money shouldn't be touched for funding education costs. If its all the parents have, then they should be focusing on their own retirement anyway since the kids would probably prefer it that way instead of paying for mom & dad on the back end.

The other tricky thing about what counts/doesn't count for FAFSA is that the colleges themselves often have forms as well that from what I have seen, don't correlate to the FAFSA form. Qualifiying for aid in general is tough to do unless you are in a tough financial situation to begin with.

For someone with kids that young, a couple options:

1. A ROP life policy might not be a bad idea depending on the rate of returned compared to just the straight life policy (this assumes they already have a need for coverage). A tax free 5% return that doesn't show on the FAFSA, but comes due around the time college is done to pay off any loans could potentially work. The parent also has the option to change their mind about the use of the funds.

2. Regular 529 plans are probably the most common vehicle and fairly good at what they do, although they do count against financial aid.

I have a tough time with agents selling whole life as a 529 plan with a free physical and "small mortality fee" attached. I would guess annuities are probably more hype than helpful as well, but every situation is different. If the parent owns a business, putting the student on the payroll part time may also be a useful strategy for the parent to deduct the college expenses and the income shows up in the much lower tax bracket of the student. Obviously a lot of factors come into determining the best solution.

Graham · 10-30-2009, 02:39 PM

I would go with a 529 plan, just about every state has one but you don't have to use the one in your state since they are not tied to colleges in that state like a state specific tuition pre-purchase plan is (like a MET in Michigan). I opened my kids 529's the day they were born.

stormtracker · 10-30-2009, 04:47 PM

Tell your prospective college saving clients to recommend to their growing children that they look into ROTC, part-time employment or other means of self-funding their education.

LGilmore · 10-30-2009, 05:11 PM

"The other tricky thing about what counts/doesn't count for FAFSA is that the colleges themselves often have forms as well that from what I have seen, don't correlate to the FAFSA form. Qualifiying for aid in general is tough to do unless you are in a tough financial situation to begin with."

Having gone through this personally with two kids and dozens of schools, I never came across a single college or university that asked for any financial information outside of the FASFA. Between the two kids roughly 25 college applications.

Every school we looked into wanted us to do the FASFA even when they offered full rides. (both kids national merit scholars) To each their own on planning and recomendations, everything has a plus/minus to it. I would not put anything down in front of any client because that just might be the solution to their situation.

I strongly suggest any agent that is dealing with college planning go on the FASFA website and play a bit to get an idea of what is asked. You might find it enlightening and it may change your opinions.

Full Throttle · 10-30-2009, 05:28 PM

At the university I went to, we definetly had to complete a FAFSA to qualify for federal aid. However, unless the parents truely are in a tough position, it is difficult to qualify for federal aid. My parents weren't even close to wealthy and I wasn't remotely close to qualifying for aid even if they would have had all their savings in annuities. My point was this, many times the institutions themselves give out need based tuition help, however, the questions can be much different (more restrictive) than those on the FAFSA form. My school was a prime example.