Alternatives to Life Insurance for Children
Life insurance is the primary way that most individuals consider when providing for their children’s future college funding. There are a variety of options that will better serve the needs of a child should anything happen to either of their parents. The alternatives will provide for a child’s education and other needs.
529 Plan
One of the best features of a 529 Plan is that parents can contribute any amount at any time without any pre-set limits. It’s a flexible investment plan that can be used for college costs or approved K-12 expenses. The money isn’t taxed, providing it’s utilized for qualified expenses ranging from books and tuition to room and board. The plan is free to open and the account holder maintains complete control.
Money can be used at most nationwide educational institutions and funds and holders can change beneficiaries to another family member. Individuals can choose a pre-designed portfolio or customize their options. Money can be withdrawn tax free for college expenses, it has no contribution limits, but there are no tax deductions for contributions.
Prepaid Plan
A Florida Prepaid College Plan has monthly payment options that will vary from year to year and are based on the age of the child, making it an ideal solution for very young children that are years away from college attendance. The plans also provide parents with different options as to what expenses will be covered.
The plans are guaranteed by the state and lock in the cost of college in advance, even when college costs increase. Funds can be used for in-state or out-of-state colleges and the money can simply be withdrawn should the child choose not to further their education. The investment grows tax free.
Roth IRA
An attractive feature of a Roth IRA is that it can be utilized for retirement or college-associated expenses. They grow as tax-deferred accounts, but there’s no tax deduction for them. Withdrawals are tax free at the age of 59.5 years of age, but penalized and taxed for early withdrawal unless it’s an amount equal to what’s been contributed.
The funds can be used for the education of the account holder, spouse, children and grandchildren. A Roth IRA offers greater flexibility than the dedicated 529 Plan when used for educational purposes. An additional benefit is that a Roth IRA isn’t counted as an asset when applying for financial aid. If not used for college, money can also be used as a retirement fund.
Other Options
Mutual funds and custodial accounts are also available that can be utilized to save for college, with the added advantage that there are no restrictions on how the money can be used and no investment limits. U.S. Savings Bonds are another solution that’s state tax free, federally tax deferred, but have limits on yearly investments.
Withdrawals from a Coverdell Education Savings Account are tax free for K-college expenses, but are counted as an asset for financial aid and have investment restrictions. Insurance for children isn’t the best route for college savings. Individuals should consult with a financial planner to help determine their needs and the best avenue for financing a college education.
For more information about how The Sena Group can help you with any
of your insurance needs, please contact us at 561-391-4661.
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The Sena Group
6501 Congress Ave., Ste. 100
Boca Raton, FL 33487
