Should I convert my 529 Plan into a whole life insurance policy?

College Tuition, Financial Planning, Life Insurance
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July 2017
67% of people found this answer helpful

Here's a look at the logic your financial planner is trying to explain to you. 

Under the EFC calculations, students' parents assets are assessed to find out how much financial aid can be received. With other non-retirement assets, your 529 will be added to the amount of assets that can be used in the calculation. Your 529 will affect your EFC by a maximum of 5.64%. Which means that it will increase your EFC number by $1410. Life insurance cash value is not included in the calculation. However, this small savings would only grant a smaller portion of student aid.

Making the conversion would cost you much more than what you would gain!!! Cashing $25,000 out of a 529 plan, would mean that you would have to pay 10% penalty on your growth + taxes. Depending on the amount you contributed to it, this might be a lot more than the small amount of financial aid you would gain.

You would also probably lose upside! Depending on the age of the student, you might be looking at years of possible investment growth. Cash value insurance are front-loaded with fees, which makes it hard to make money on short/medium term investment goals.

I think you get the point... It would be your financial planner/insurance agent that would benefit the most from the transaction he/she is recommending.

I hope this helps.

July 2017
July 2017
July 2017
July 2017