Why choose a 529 over WL?

[CHUMPS FROM OXFORD]

Situations will vary making one or the other the best choice. However, when you run across someone who isn't open to an idea and willing to compare... walk away..your time is better spent elsewhere.

Fortunately, James is indeed open to different ideas and is willing to compare. Whichever option he chooses, will be appropriate.

There are still some, however, that on occasion, insist on shoving a square peg into a round peg. Financial Planning 101...

 

[James]

There are still some, however, that on occasion, insist on shoving a square peg into a round peg. Financial Planning 101...

With a big enough hammer I can fit any square peg into any round hole.

As far as my child education, I'll write a damn check. If he decides to go to a State University such as UT. He is already guarantee 50% off of all tuition within the State, his mother works at UTMC and has enough years now to secure those benefits.

PWL, can indeed pay 6-8% of the cash value, I do believe that most of the good Mutuals have been paying in that range for some time now. Only question is getting the cash within the policy as quick as possible with the least amount of cost.

Ps, I'm not into college planning, this is strictly a fun conversation for me since this bozoo threw it in my face!

 

[djs]

A few issues come up....
The challenge in college education is most people start later than they should. In a whole life policy, it is difficult to fund them in a large enough way to make it work. It's difficult to dump $50K into a whole life policy in year 1 for a child. Possible, maybe, but you have to watch out for the MEC issue.

When I looked into this, there are costs involved in both programs, but the cost with the WL policy will most likely be higher, leading to lower returns, everything else being equal. I don't know of any whole life policy that the costs are lower, but I haven't looked at enough to make this a blanket statement.

And, as Chumps said:
NOTE: THE STATEMENTS I MADE WERE REGARDING MY PERSONAL 529 PLAN AND SHOULD NOT BE CONSTRUED AS ADVICE OR A RECOMENDATON FOR ANYONE READING THIS.

Dan

 

[James]

A few issues come up....
The challenge in college education is most people start later than they should. In a whole life policy, it is difficult to fund them in a large enough way to make it work. It's difficult to dump $50K into a whole life policy in year 1 for a child. Possible, maybe, but you have to watch out for the MEC issue.
Dan

Here is one scenario I know people were using but, didn't know how till someone slap me upside my head. Think Blend! http://www.glenndaily.com/documents/blending.pdf Here is a article about how a blend product design, you can indeed get around MEC.

Before 1995, some commentators wondered if blending could have the adverse tax consequence of creating a modified endowment contract, because the seven-pay premium might be determined with respect to only the base amount, rather than the entire amount of coverage. That concern abated with the publication of three IRS private letter rulings (9513015, 9519023, 9741046).​

AS NOTED; NOTE: THESE STATEMENTS I MADE SHOULD BE CONSTRUED AS ADVICE OR A RECOMENDATON FOR ANYONE READING THIS.

 

[CHUMPS FROM OXFORD]

Interesting article...but more than 10 years old. "Blending" works in some situations, but not college funding when you only have 7-8 years to work with.

Bluemarlin's idea was the best. I hope my two kids are reading this.They're on the computer all of the time!

 

[slushhhpuppie]

Plus what kind of return can a person expect from a 529?

Whatever the mutual funds in the account returned.

State sponsored 529's are way too convoluted and usually they don't pay the rep anything.

Open an American Funds CollegeAmerica account and call it a day.

 

[CHUMPS FROM OXFORD]

"usually they don't pay the rep anything"

That doesn't mean they're not a good plan. As I mentioned, Ohio's 529 is awful, but I don't know about too many other state plans.

 

[James]

As I mentioned, Ohio's 529 is awful, but I don't know about too many other state plans.

I think that is the general concensus from various of States I hear about. So let us ask this, does any one live in a State that offers Great 529 Plans?

 

[CHUMPS FROM OXFORD]

James...even Ohio's "awful" plan was still better than a whole life policy..in my case anyway.

Utah, Nebraska, Michigan and Iowa are a few to look at. Maybe NY as well.

 

[James]

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Whatever the mutual funds in the account returned.

State sponsored 529's are way too convoluted and usually they don't pay the rep anything.

Open an American Funds CollegeAmerica account and call it a day.

Here is some numbers from one of the funds that I found on American Funds CollegeAmerica, it being the, [FONT=Minion-DisplayRegular*1]American Balanced Fund, about average I would suggest.
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[FONT=NewsGothicBT-Bold*1][FONT=NewsGothicBT-Bold*1]Value of Income Total[/FONT][/FONT][FONT=NewsGothicBT-Bold*1]
[FONT=NewsGothicBT-Bold*1]principal return return[/FONT][FONT=NewsGothicBT-Bold*1]†[/FONT]​

[/FONT]

[FONT=NewsGothicBT-Bold*1][FONT=NewsGothicBT-Roman*1]1975 +2.4% +3.2% +5.6%[/FONT]
[FONT=NewsGothicBT-Roman*1]1976 +20.0 +6.0 +26.0[/FONT]
[FONT=NewsGothicBT-Roman*1]1977 –4.5 +5.2 +0.7[/FONT]
[FONT=NewsGothicBT-Roman*1]1978 +0.6 +5.6 +6.2[/FONT]
[FONT=NewsGothicBT-Roman*1]1979 +1.6 +6.0 +7.6[/FONT]
[FONT=NewsGothicBT-Roman*1]1980 +7.1 +7.3 +14.4[/FONT]
[FONT=NewsGothicBT-Roman*1]1981 –3.5 +7.9 +4.4[/FONT]
[FONT=NewsGothicBT-Roman*1]1982 +20.8 +8.6 +29.4[/FONT]
[FONT=NewsGothicBT-Roman*1]1983 +8.4 +7.7 +16.1[/FONT]
[FONT=NewsGothicBT-Roman*1]1984 +2.2 +7.2 +9.4[/FONT]
[FONT=NewsGothicBT-Roman*1]1985 +22.3 +6.8 +29.1[/FONT]
[FONT=NewsGothicBT-Roman*1]1986 +10.9 +6.0 +16.9[/FONT]
[FONT=NewsGothicBT-Roman*1]1987 –2.3 +6.3 +4.0[/FONT]
[FONT=NewsGothicBT-Roman*1]1988 +6.6 +6.3 +12.9[/FONT]
[FONT=NewsGothicBT-Roman*1]1989 +14.9 +6.6 +21.5[/FONT]
[FONT=NewsGothicBT-Roman*1]1990 –7.3 +5.7 –1.6[/FONT]
[FONT=NewsGothicBT-Roman*1]1991 +18.6 +6.1 +24.7[/FONT]
[FONT=NewsGothicBT-Roman*1]1992 +4.4 +5.1 +9.5[/FONT]
[FONT=NewsGothicBT-Roman*1]1993 +6.3 +5.0 +11.3[/FONT]
[FONT=NewsGothicBT-Roman*1]1994 –4.2 +4.5 +0.3[/FONT]
[FONT=NewsGothicBT-Roman*1]1995 +22.4 +4.7 +27.1[/FONT]
[FONT=NewsGothicBT-Roman*1]1996 +9.2 +4.0 +13.2[/FONT]
[FONT=NewsGothicBT-Roman*1]1997 +17.1 +3.9 +21.0[/FONT]
[FONT=NewsGothicBT-Roman*1]1998 +7.5 +3.6 +11.1[/FONT]
[FONT=NewsGothicBT-Roman*1]1999 –0.1 +3.6 +3.5[/FONT]
[FONT=NewsGothicBT-Roman*1]2000 +12.0 +3.9 +15.9[/FONT]
[FONT=NewsGothicBT-Roman*1]2001 +4.5 +3.7 +8.2[/FONT]
[FONT=NewsGothicBT-Roman*1]2002 –9.0 +2.7 –6.3[/FONT]
[FONT=NewsGothicBT-Roman*1]2003 +20.2 +2.6 +22.8[/FONT]
[FONT=NewsGothicBT-Roman*1]2004 +6.8 +2.1 +8.9[/FONT]
[FONT=NewsGothicBT-Roman*1]2005 +0.9 +2.2 +3.1[/FONT]
[FONT=NewsGothicBT-Roman*1]2006 +9.1 +2.7 +11.8[/FONT]​

[FONT=NewsGothicBT-Bold*1]Average annual total return: +12.0%[/FONT]
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Now we have to understand, that the Fund Return does not equal your return! We have to view cost in this plan, and the ups and downs as this is what will effect your rate if you had to take money out at the wrong years;​

[FONT=NewsGothicBT-Bold*1]Significant stock market declines[/FONT]​

[FONT=NewsGothicBT-Roman*1]–13.5 In 78'[/FONT]
[FONT=NewsGothicBT-Roman*1]–20.2 In 82'[/FONT]
[FONT=NewsGothicBT-Roman*1]–32.8 In 87'[/FONT]
[FONT=NewsGothicBT-Roman*1]–19.2 In 90'[/FONT]
[FONT=NewsGothicBT-Roman*1]–19.1 In 98'[/FONT]
[FONT=NewsGothicBT-Roman*1]–47.4 This happen in 2002, for those that had to access this money in 2003-2005 were hurting![/FONT]​

What this suggest is that any given year you can have a really bad run, if that money is being pulled out shortly afterwards the effect of lost is real, not a paper lost.​

Now if some financial planners here want to go into another "Highly Recommended" advise, which is to leave the equities side and move the money over to a safer Bond related investments that this same fund is posting around 4.5% return also, having a drag effect of actual earnings of the participant.​

[FONT=NewsGothicBT-Italic*1]

[FONT=NewsGothicBT-Italic*1] The fund’s 30-day yield for Class A shares as of January 31,[/FONT]

[/FONT][FONT=NewsGothicBT-Italic*1][/FONT]

[FONT=NewsGothicBT-Italic*1][FONT=NewsGothicBT-Italic*1]2007, calculated in accordance with the Securities and[/FONT][/FONT][FONT=NewsGothicBT-Italic*1]​

[FONT=NewsGothicBT-Italic*1]Exchange Commission formula, was 2.49% (2.47% without[/FONT]​

[FONT=NewsGothicBT-Italic*1]the fee waiver). The fund’s distribution rate for Class A shares[/FONT]
[FONT=NewsGothicBT-Italic*1]as of that date was 2.26%. Both reflect the 5.75% maximum[/FONT]
[FONT=NewsGothicBT-Italic*1]sales charge. [/FONT][FONT=NewsGothicBT-Roman*1]The SEC yield reflects the rate at which the fund[/FONT]​

[/FONT]

[FONT=NewsGothicBT-Italic*1][FONT=NewsGothicBT-Roman*1]is earning income on its current portfolio of securities while[/FONT]

[FONT=NewsGothicBT-Roman*1]the distribution rate reflects the fund’s past dividends paid to[/FONT]

[FONT=NewsGothicBT-Roman*1]shareholders. Accordingly, the fund’s SEC yield and distribution[/FONT]​

​

[FONT=NewsGothicBT-Roman*1]rate may differ.[/FONT]
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[FONT=NewsGothicBT-Roman*1]I'm sorry guys but this doesn't seem like the best plan I came accross![/FONT]​

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