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Tuesday, March 31, 2015

Why having a whole life policy for college planning is a great idea…even if you already have a 529 Plan.

By Teresa Kuhn, JD, RFC, CSA
Authorized Bank On Yourself ® Advisor
President, Living Wealthy Financial



Earlier this year, the Obama administration proposed that 529 plans be taxed at ordinary income rates on both the initial asset value and all future returns on the asset. Since an asset’s value is in its’ future returns, this proposal amounted to double taxation.

While the plan was squelched due to public backlash, I have no doubt that more attempts to tap into 529’s will be made in the future.  After all, a pile of money saved by responsible citizens is just too much for politicians to resist.

The government’s recent attempt to skim 529 plans highlights what is perhaps my biggest reservation about using them (or any government-controlled plan) to save for college.
It’s the fact that whoever builds the plan gets to call the shots. 

Take Individual Retirement Accounts (IRA’s) for example.  Since their introduction in 1974 as part of the Employee Retirement Income Security Act (ERISA), the rules have been tweaked and massaged multiple times and the idea of taxing those accounts is always hovering over Capitol Hill.

My point is this: most peoples’ financial strategies, whether saving for retirement, a new home, or college, are formulated with current rules and regulations in mind.  These types of plans are marketed with the implicit idea that one is “secure” and “locked in” and it’s implied that the government will never change the rules.  We’ve seen time and again that this is simply not true.

Every plan, whether government-backed, privately-managed or even plans funded by the type of specially-modified whole life that I advocate, has its’ own inherent weaknesses.
There is nothing that is 100% bullet proof.  However, when you relinquish the amount of control that you must in order to participate in a government-backed plan, you incur an especially large degree of vulnerability.

Aside from vulnerability to the whims and hidden agendas of politicians, 529 plans have some other weaknesses of which you need to be aware.   These weaknesses are some of the reasons why I recommend my clients fund a significant portion of college using specially designed whole life policies.  Such policies have distinct advantages over 529 plans and can be used in conjunction with 529’s to create a more secure, more powerful strategy.

Many people who market 529’s claim their superiority over other options is due to the potential for growth.  However, in nearly every state, 529’s possess a lack of investment options.  This limits your ability to seek out your own preferred funds and you are limited to trusting that the folks in charge of your plan have made the wisest decisions.

In addition, even in states where there are some limited choices, you can only exercise your option to change once per year.  You have zero margins for error.

Because of this, many of my clients have opted for the peace of mind, safety, and guarantees of whole life over the volatility associated with the stock market.

Another problem with 529’s is that their rigid rules allow the funds accumulated to be used only for “qualified” educational expenses.     Certain things your child will need as he or she enters college might not be considered qualified expenses and will have to be paid out of pocket. These needs might well engender debt that the student might have a difficult time paying back.

Situations such as these are when having a properly managed modified whole life policy can come in handy.  Not only can you take money out 100% tax free via loans and withdrawals from the policy, you can do so at ANY time for ANY reason. Imagine how useful this would be for students who have needs outside the definitions of a 529 plan. 

Unlike government-sponsored plans, in which the regulations are highly restrictive, the flexibility of whole life allows for some very creative possibilities for college and retirement planning.

One of my clients came up with what I think is a brilliant strategy.  She wants to fund a whole life policy for her child that would allow her to buy an apartment or condo in which the child can live during college, rather than a dorm room.   

Imagine if, instead of paying tens of thousands of dollars to house her child in a dorm room, this parent could provide better housing for her student and acquire an income-producing property in the process.  The property could become part of the parents’ retirement blueprint or they could gift it to their child upon graduation; allowing him or her to enter the world with a ready-made source of income.  That would be an awesome head start for anyone, but especially for kids living in a world where a college degree no longer guarantees a job.

Another problem with 529’s is that contributions are limited.  At the time of this writing, parents can contribute up to $14,000 (or $28,000 for married couples) each year without incurring gift taxes.    By accelerating five years of investments, you can also, via a special election, contribute $70,000 at one time. ($140,000 for couples).

You might be saying at this point, “So what?  Modified whole life plans also have contribution limits.”  This is true, especially during the first few years of a policy.  However, unlike 529 plans, the vast majority of whole life plans can be structured by a knowledgeable financial professional in such a way that contributions can easily exceed 529 contribution limits.   Icing on the cake is the fact that whole life plans are not capped at the $350,000 lifetime limit of a 529 plan.  With a whole life plan, you can have as much as you want in the plan and get the money out whenever you want.
Another significant difference between whole life and 529 plans that has the potential to blindside parents concerns beneficiaries.   In a 529 plan you can change the beneficiary without penalty for any reason anytime you want.  If Johnny Jr. insists he doesn’t want to go to college, you could switch the beneficiary to another relative.  As long as that relative uses the money for qualified educational expenses, there are no penalties.
Whole life policies also allow you to change beneficiaries when you want, but with some big differences.  In a whole life plan, you can designate anyone (not just a family member) as beneficiary, choose multiple beneficiaries, or designate a charity, church, or other institution as the beneficiary. 
For some parents of college-bound students, the money they’ve saved in their 529 plan, even if they’ve managed to max it out, won’t be enough to pay for 4 years of college.  This is especially true if their students have chosen certain careers, such as medicine, law, dentistry, or veterinary medicine or they choose to attend a more expensive private university.
For example, according to US News and World Report, the average cost of medical school tuition for the 2014-2015 year was over $50,000.  That’s just tuition.  Add in the costs of housing, food, supplies, and fees and a 4 year medical degree could cost most than $350,000.
The American Medical Students Association (AMSA) estimates that ever-increasing costs have driven students to seek financial aid and private loans.   In 2015, over 86% of all medical students graduate will graduate with significant debt, some of which they must begin paying back within a few months of graduation.
A whole life policy could solve this in several ways.  For one thing, as I mentioned before, there is no cap on how much you can have in your policy over a lifetime. 
Another big advantage is that, while a robust 529 plan can impact your child’s financial aid score, money in a whole life policy does not factor into financial aid calculations. This could have a huge impact on the amount of aid for which your child qualifies.
The problem inherent in all planning is that you can’t see into the future.  Your goofy little boy, the one who scribbles on your walls and breaks your furniture, could wind up with the talent to become a heart surgeon.  Or he might want to start his own business right out of college, or teach school in Africa.   You can’t possibly know what the future holds.
That’s why I recommend, even if you want to keep your college savings in a 529 plan, that you investigate the potential for regaining the use, control and liquidity of your money by starting a modified whole life policy. 

That way, no matter what your child chooses to do in life, you can ensure that he or she has the very best start possible, without compromising your own financial future, and without having to leap through hoops to get access to your funds.

Wednesday, March 18, 2015

Are you listening? Check Out the Latest On Living Wealthy Radio


re: don't miss these recent episodes...


March 15th Show: Dr. Srikumar Rao, Author & Empowerment Coach

March 15th, 2015
Do you have a nagging sense that, somehow, time is slipping by and you’ve accomplished only a fraction of what you are capable of? Perhaps your job isn’t what you thought it would be or you’re just not progressing in your career the way you would like. Is there an undercurrent of stress in your life? Dr. Srikumar Rao, is a professor and founder of the Rao Institute, a program focused on empowering entrepreneurs and professionals become more creative and find fulfillment in true success.


File under: self improvement, #empowerment, srikumar rao, #entrepreneurs

March 8th Show: Nick Dranias, Attorney & Article V Convention Advocate

March 8th, 2015
Did you know the current national debt is over 18 trillion dollars? In case you’re wondering, that’s about 150 thousand dollars per taxpayer! How in the world is that sustainable? And what would it mean for us if the US had to default on such a staggering mountain of debt? And most importantly, how do we change this?
http://traffic.libsyn.com/livingwealthynetwork/030815_NickDranias.mp3

File under:#constitution, #freedom, #personal liberty, #balanced budget, #article V, #nick-dranias

Understanding Obamacare with Rick Liuag

Are you concerned about Obamacare? Maybe you recently received notice that your premiums are going through the roof. Or perhaps your deductible is simply unrealistic. What will the impact be to your family, business, health.  Join Obamacare expert Rick Liuag for an eye-opening glimpse at this ever-changing piece of legislature that is likely to be with us forever, whether we like it or not.

http://btr.shows.s3.amazonaws.com/7/425/show_7425129_2015_03_10_12_27_45.mp3




Tuesday, December 23, 2014

Do you know what a "short squeeze" is? What about a "gold lease?"

re: a short, excellent primer on Wall Street and finance




If you've ever wondered about some of the terminology thrown around by financial writers or television pundits, check out the great podcast with James Howard Kunstler and Chris Martenson.

You'll learn about the mysteries of "shorting" and going "long," as well as the interesting idea of leasing gold.

http://kunstler.com/podcast/kunstlercast-261-whuzzat-mean-a-primer-in-financial-jargon-with-chris-martenson/








Tuesday, October 14, 2014

Another way to think about college planning




By Teresa Kuhn, JD. RFC, CSA
Living Wealthy Financial



College tuition rates are increasing at a breathtaking pace leaving many American parents tossing and turning at night wondering how, or if, they’ll be able to pay for college when the time comes.


Adding to this worry is the very real possibility that a decision of where to park college funds might turn out to be more important than standardized tests, grades, or extracurricular activities in determining a child’s ability to attend a college of their choice.


In fact, more and more parents have realized that, next to retirement planning, college planning is one of the most vexing, yet critical components in a family’s healthy financial future.   That’s why most parents are willing to undertake arduous, often frustrating steps to learn more about the choices they have when it comes to solid educational planning.


There are, of course, several acceptable methods of planning for a child’s higher education, including 529 plans, Uniform Gift to Minors Accounts (UGMA), Uniform Trust to Minors Accounts (UTMA), Coverdell Education Savings Accounts, and of course, ordinary savings and investment vehicles.   Each of these, as you probably suspect, each has its’ own advantages and disadvantages as well as its’ own unique rules and requirements.


Let’s take a look at one of the most popular ways people are currently choosing to plan for their child’s education, the 529 plan, and see how the pros and cons line up to help you determine whether or not this is a good choice for your child.

I’ll also explain a little-known way that, even if you have one of these plans and it seems to be working well, you can improve it and add to your peace of mind.


What IS a 529 Plan Anyway?

“529” refers to the section of the Internal Revenue Code that describes a government-administered savings plan that is designed to be a tax-advantaged way for people to save for qualified higher education expenses.


Such plans are usually sponsored by individual states and are regulated by state agencies under professional management. Qualified withdrawals are now free of federal tax and depending on the state in which you live; you can save in excess of $200,000 per beneficiary.


 Additionally, 529 plans have no income limitations or age restrictions.   You can start one no matter how much you make or how old the beneficiary may be.


While there are several advantages of 529 plans that make them attractive to parents, they also have certain non-negotiable requirements that could, depending on your individual circumstances, become problematic for you when the time comes for your child to use them.


For example, although 529’s have generally fewer restrictions on distributions and offer a place to shelter funds when financial aid is being calculated, they often offer few to no state tax incentives.
Another critical issue with 529 plans is the stipulation that funds may only be used for qualified educational expenses such as tuition, books, and room and board.

Should your child decide to not attend college, if he or she receives a full scholarship, or if your child wants to attend an unaccredited school, you are usually forced to either transfer the 529 funds to another beneficiary or withdraw them.

If you don’t have another qualified beneficiary, you can pull out the funds, subject to tax penalties.  These penalties could be substantial.   If you have been able to take state tax deductions, for example, you may wind up getting a bill for back taxes as well as a 10 percent penalty on earnings.

Because 529 plans are administered by the individual states, they vary substantially in quality.   An analysis of state plans published by Saving for College.com (http://www.savingforcollege.com/articles/2014-plan-performance-rankings-q1)
ranked New Jersey, District of Columbia, and California as having the best performing plans in 2014, based on an array of criteria over 3, 5 and 10 year periods.

According to Saving for College.com, New York, Alaska, and Utah were the three worst-performers.  Parents living in low-performing states might want to look into other alternatives to finance their children’s’ education.

Fees

Like most investment funds, the typical 529 savings plans charges a percentage of your investment to cover operating costs.  These fees vary from state to state and also depend on whether you purchase your plan directly from your state or buy it through a broker.

Citing a report by Financial Research Corporation, Forbes magazine points out the typical 529 plan offered through a state has an average annual fee of 0.69%.  A 529 sold through a broker has an average annual fee of 1.17%.

Explains Forbes, “Although the difference may seem negligible at first, it adds up. If you invested $10,000 over 18 years (assuming you’d get a 6% return), you could have $2,000 less in a 529 plan with a 1.17% fee, compared to a plan that charges 0.69%.”
 (http://www.forbes.com/sites/learnvest/2013/07/18/529-savings-plans-9-mistakes-people-often-make/)


Risk and reward?

Because they are tied to the market, earnings in a 529 plan are uncapped.  
However this ability to earn without limit is tempered by the inevitable amount of risk associated with investments tied to Wall Street.

While promotional materials and brokers often tout the “risk-free” nature of 529’s, the fact is that many states do not guarantee their plans, including Illinois, Kentucky, Maryland, Michigan, Nevada, Pennsylvania, South Carolina, Virginia and West Virginia.

In certain states, you may have no commitment that your money will cover the cost of a college education if tuition hikes outpace your investments.

Fewer choices

Depending on the state in which you live, investment options within 529 plans can be limited.  In some states, you have only one investment option. 

A blended, balanced approach to college planning

Just as there is no “one size fits all” blueprint for retirement planning, there is also no one college planning vehicle that is perfect for everyone.  Each family has its’ own resources, challenges, and unique circumstances.

This is why I recommend that, regardless of whether or not you have one of the qualified government plans, you consider the power of a Bank on Yourself® plan to help you meet or exceed your college planning goals.

Here are just a few ways having a Bank on Yourself plan as either the cornerstone of your college planning or as a supplement to existing plans makes sense:

  • Flexibility.  529 distributions must be for "qualified education expenses”.  The cash you put into the specially-designed whole life policies like the ones used in Bank on Yourself plans can be used for anything.  So, if junior decides to skip college and become an entrepreneur, your BOY policy could be used as seed money to help him realize his dream.
  • No impact on financial aid calculations.  Unlike other savings vehicles, money you put into a Bank on Yourself policy is not used in determining eligibility for financial aid.
  • Liquidity. If you need to, you can borrow from your Bank on Yourself policy and then pay yourself back.  You get the interest, instead of a bank.  If circumstances ever forced you to skip a Bank on Yourself payment, your credit would not be impacted.
  • Safe, sane growth.  Since Bank on Yourself plans aren’t tied to the stock market, your money isn’t exposed to the risky business on Wall Street.  BOY offers safety and predictability. When you borrow from a Bank on Yourself policy, your money will continue to grow… as if you had never taken out a cent!
  • Tax advantages- When you have a professionally-tailored Bank on Yourself plan, your money is generally tax-free.  In fact, if you ever have to borrow from the policy, you will pay no fees, penalties, or taxes on that money.
  • No limits on how much you can contribute.  Bank on Yourself policies can be structured so that you can retain their advantages regardless of how much money you want to contribute.
  • Additional peace of mind with the death benefit.
  • Control.  With most qualified plans, allocation changes can only be done a specific number of times and dates on an annual basis.  Having money in a Bank on Yourself plan allows you to remove funds when you come across other attractive investment opportunities. For example, instead of paying college dorm or apartment expenses, if you had enough in your Bank on Yourself policy you could purchase a house or income-producing property where your child could live while they earned their degree.
  • Fewer limitations:  Most Bank on Yourself BOY plans can be structured to exceed the limits of a 529 plans, and they are not subject to the $350,000 lifetime limit of a 529 plan.
  • Beneficiary options: In a 529 plan, investors can change plan beneficiaries without penalty, at any time, and for any reason. However, 529 plans have family beneficiary restrictions.  A customized Bank on Yourself plan allows the owner to change the beneficiary to any person, or to a charity, as well as to choose multiple beneficiaries to receive whatever percentage deemed appropriate by the policy owner.
  
These are just a few of the reasons why I recommend that my clients consider adding the power of a well-designed Bank on Yourself plan to their college plans.  Having Bank on Yourself in addition to anything you already have in place is a great way to plug holes in your plan and create a more predictable path to college planning success.

You can learn more about how you can tap into the amazing potential of Bank on Yourself by going to the Living Wealthy Financial site at http://www.livingwealthyfinacial.com, or by calling us at 1-800-382-0830









Friday, October 10, 2014

Living Wealthy Goes British

re: check out our new Living Wealthy Financial  podcast commercial



Thursday, August 14, 2014

Two Great Living Wealthy Shows You Don't Want to Miss

re: free your mind


from Teresa:   Check out these recent shows with Nelson Nash, creator of the Infinite Banking System, and Harry Dent, contrarian economist and demographer.  Both of these shows really nailed it when it comes to dissecting the problems in our current economy.  Listen to how Nelson Nash became his own banker and avoided paying thousands of dollars in unnecessary interest and fees to bankers.  Harry Dent, financial media darling, also has some interesting things to say about why putting money into specially modified whole life policies is a pretty smart idea.

File under: "Bank on yourself," "infinite banking", "Nelson-Nash,"  "Harry-Dent," "Living-Wealthy-Radio," "whole-life-insurance,"


Saturday, June 28, 2014

Men- Keep Your Wealth By Keeping Your Health: A conversation with Dr. John LaPuma, MD.

I sat down recently with one of the most interesting men in the health and wellness movement, Dr. John La Puma.  Dr. La Puma believes that medicine has largely ignored men when it comes to diet, nutrition, and fitness advice.

He is on a mission to change all that with his revolutionary ideas about food as the ultimate medicine.  Dr. La Puma is a trained chef famous for creating healthy, delicious versions of the foods you love.

Check out the interview here: