IBC or 529?

...College Savings Food for Thought

What is a 529 College Savings Plan?

A 529 college savings plan is a tax-advantaged state-administered investment program that is authorized under Internal Revenue Code Section 529. These plans allow investors to save money in an account in which the earnings will grow free from federal income tax and, when used to pay for "qualified higher education expenses", may be withdrawn federal income tax-free. In many states, a participant can receive special state incentives, including state tax treatment that mirrors the federal tax treatment, tax deductions/credits and/or other state tax benefits, based on participation in their state’s program(s).
Earnings in a 529 plan grow tax-deferred and are free of federal income tax when used for qualified higher education expenses under Internal Revenue Code Section 529 (26 U.S.C. 529). Qualified higher education expenses include tuition, mandatory fees, books, supplies, and equipment required for enrollment or attendance. Room and board expenses are also eligible for students enrolled half-time or more based on the current allowance for room and board determined by the eligible educational institution for federal financial aid purposes, or actual invoice amount charged by the institution to the beneficiary, if greater. In addition, qualified higher education expenses also include expenses of a special needs beneficiary that are necessary in connection with his or her enrollment or attendance at an eligible educational institution.

What are the tax benefits?

Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes.   Additionally, most states allow tax-deferred earnings and tax-free withdrawals for qualified higher education expenses, and some states allow families to deduct the full or a partial amount of their contribution from their state income taxes.

While many aspects of 529 plans sound very appealing to "the masses," how we think about what is going on here is vitally important.  Note that in the above descriptions I've highlighted each brief segment points us back to the idea that someone else (our government) is in control of the flow of our investment dollars going and coming.  This is really the fundamental difference between this seemingly benign savings plan and having true, 100%, control of your cash flow in every way including college savings.  If you were to engage the IBC teaching videos on this page you would receive a healthy quick education on how IBC promotes flexibility, versatility, and freedom.  If you read the above on 529 plans you have to ask yourself - am I getting those three values from this college savings option?

Further, once a 529 plan is exhausted of funds on use of school/educational purposes what do you really have to show for the savings (other than a diploma)?  With IBC as your college savings option, you not only have a safe cash growth environment, use of cash for anything in life including college, an ever increasing pool for wealth building beyond college and a financial tool for retirement and generational legacy.  All this happening with 100% access and no penalties to access funds. Finally, an IBC plan allows for you to apply for FAFSA funding while not being required to report your dollars on the form. Simply stated, IBC is truly a strong consideration for college funding and wealth building beyond college providing versatility, flexibility, and freedom.

  

Millenials and Retirement

...The Pluses of Using an IBC Plan...

For members of Generation Y (Millenials), people born between 1983 and 2000 retirement is but a gigantic far-off dream and knowledge of how to retire using an IBC plan OR using the cash value of a participating whole life insurance policy as supplemental income may be even more foreign and probably a bit, if not a lot, very old fashioned.  Yet, for this generation there are no gold watches as symbols of long-held employment over a significant time period. There may be no huge lump sum pensions to grab and for all practical purposes (as far as we know) possibly no Social Security funds to access. Indeed Millennials will probably hold 10 or more jobs by the time they are forty (Chicago Tribune, July 8, 2013), and they know that wealth accumulation will probably come about only by maintaining an "entrepreneurial" attitude about where to tuck money for they days of retirement.  A real "do-it-yourself" nature will be the vanguard of this generation for retirement savings/planning.

While most companies will offer some kind of 401(k) alternative as employee benefit, there are plenty of strings attached to tax qualified monies (even though it sounds cool that employers will match contributed dollars).  The glitch on this among several is the job changing.  A trail of 401(k) plans makes it hard to keep track of funds accumulated in some cases.  Job switches, start ups, second careers, promotions and bonuses, underemployment, all add to the idea of retirement funding being hard to track or maintain funding not to mention that funds are not really in your full control.  

However, with an IBC plan, funds are in full control of the contributor, NOT subject to minimum distributions, penalties for early withdrawal, or other restrictions typically associated with formal retirement accounts. An IBC plan is essentially life insurance with a participating whole-life insurance company. It is designed to demonstrate that our need for financing, cash flow, and retirement funding is greater than our need for death benefit which we'll only need once, and, it is implemented so that Gen Y can place funds in a steadily growing financial vehicle that allows for accumulated wealth using non-tax qualified money for funding.

One final thought - using an IBC plan can account for debt reduction for Gen Y WHILE simultaneously allowing for a ever growing retirement plan. If you are someone born between '83 and 2000 and concerned about retirement funding, please contact me.