Why choose a 529 over WL?

[James]

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.

Yet we are not talking about you or me, we are talking about the average person listening to advise that simply doesn't pan out. As my above example, it simply is not a good plan. Maybe WL is the greatest plan but, qualified 529's are horrendous as most qualified plans are.

 

[CHUMPS FROM OXFORD]

"qualified 529's are horrendous as most qualified plans are"

I don't agree. But it is fun to debate the issue!

 

[James]

"qualified 529's are horrendous as most qualified plans are"

I don't agree. But it is fun to debate the issue!

By all means! The Qualify Plan sucks, see its fun just to say it!

 

[djs]

James -

I suggest, for accuracies sake, that you run a scenerio of putting money into a 529 plan (pick one, there are many) that is age based (i.e., decreasing risk for the age of the child) and putting the exact same money into a whole life policy.

From a return perspective, I'm willing to bet you'll state that the 529 plans aren't very good. When looking at reality on total returns, the whole life plan is probably not as good as the 529. Again, every situation, every scenario, every person is different, so making general statements isn't a great idea, but a good advisor will run the scenerios for the individual, as it fits their needs and goals.

Again, the only recommendation here is to make sure you understand the clients goals, needs, desires, and work on those, based on their risk tolerance, financial situation.

Dan

 

[James]

James -

I suggest, for accuracies sake, that you run a scenerio of putting money into a 529 plan (pick one, there are many) that is age based (i.e., decreasing risk for the age of the child) and putting the exact same money into a whole life policy.

From a return perspective, I'm willing to bet you'll state that the 529 plans aren't very good. When looking at reality on total returns, the whole life plan is probably not as good as the 529. Again, every situation, every scenario, every person is different, so making general statements isn't a great idea, but a good advisor will run the scenerios for the individual, as it fits their needs and goals.

Again, the only recommendation here is to make sure you understand the clients goals, needs, desires, and work on those, based on their risk tolerance, financial situation.

Dan

The goal in this case is fairly simple, accumulate enough money to put your child thru college, as College Plan.

I can run the illustrations but, those are not so straight forward. As we see here, there is no plan to protect from the downside risk of any one investment and, people will invest in a way to best protect their savings creating a lower rate overall. Something that many here will not agree to, yet human behaviour suggest the opposite. As the guy that cause me to even think about is in fact investing in a Insurance Carrier, TIAA CREF that is giving around 3.5% return as I posted in it very on prospectus. Is that money safe, I'm sure it is! Yet he doesn't seem to understand it, I'm sure his financial planner told him this was basically an insurance policy, just not a very good one!

I already posted average returns, simply minus off cost (all cost) and you get an idea of the best payoff a 529 will pay, about 7-8% minus insurance cost. What is Mass, MT, NML paying? around 6-8%. Yet with WL or another vehicle not tied to being Qualified, you have choices and no penalties on how you use the money. As Blue suggested, the kid may need or may not need this money! If the child does not need all or any of the money the person holding the 529 is facing serious lost to reposition that money.

 

[padthaiforlunch]

Correct me if I'm wrong, but I believe the money in a 529 plan is counted against your child (designated beneficiary) for needs-based financial aid.

If that same money is in a WL policy or an annuity, the values in those accounts are not counted towards the ability of the family or child to pay for college.

Even, if the child doesn't qualify for needs-based grants, there is a significant student-loan burden when not qualifying for the loan which is interest-free while in school, vs. just getting to defer the interest (which is later capitalized).

I forget his name, but some ballsy MF is suggesting that you and I can double our income buy putting ourselves out there as "college funding advisors" and charging $1500 to advise families on how to pay for college. Of course, you get commissions on your sales, too!

 

[James]

Correct me if I'm wrong, but I believe the money in a 529 plan is counted against your child (designated beneficiary) for needs-based financial aid.

If that same money is in a WL policy or an annuity, the values in those accounts are not counted towards the ability of the family or child to pay for college.

Even, if the child doesn't qualify for needs-based grants, there is a significant student-loan burden when not qualifying for the loan which is interest-free while in school, vs. just getting to defer the interest (which is later capitalized).

Yes, you are correct about the financial assistance aspect, yet some here are questioning just how significant that is in the counting against financial aid or preferred loans. I really don't know, I'm under the impression Assets play a big part in financial aid but, I simply don't know what to make of that end of the deal.

I

forget his name, but some ballsy MF is suggesting that you and I can double our income buy putting ourselves out there as "college funding advisors" and charging $1500 to advise families on how to pay for college. Of course, you get commissions on your sales, too!

Yea, I think I heard of this guy also, didn't know he had anything to do with MF though? Yet though, the commissions on a properly set up WL contract is not that significant if set up correctly. As in the majority of the money going in under PUA pays 1.9-3% on average.

 

[djs]

James -

If you are going to quote numbers for 529's with expenses, then you have to quote numbers with WL polices with expenses. Apples to apples kind of thing. My guess is, if you do this, the 529 will beat the WL policy, but I will leave it up to you to actually run numbers.

I'm not sure what restrictions you are referring to on 529 plans. There are numerous restrictions, but then, there are restrictions (and taxation issues) on pulling cash out of a WL policy, whether you borrow it or take it out.

Dan

 

[James]

James -

If you are going to quote numbers for 529's with expenses, then you have to quote numbers with WL polices with expenses. Apples to apples kind of thing. My guess is, if you do this, the 529 will beat the WL policy, but I will leave it up to you to actually run numbers.

I'm not sure what restrictions you are referring to on 529 plans. There are numerous restrictions, but then, there are restrictions (and taxation issues) on pulling cash out of a WL policy, whether you borrow it or take it out.

Dan

Slow it down, when did I project numbers for any 529, I simply posted historical returns on a recommended plan fund. In no way did I suggest a projection of future gains in that fund, outside of hinting at what some would say is the beginning of a slowing economy. What most people don't consider when looking at previous gains of Mutual Funds or other equities is that it doesn't reflect what their gains will be. In other words the gains of any one fund is not the end gain of any one participant.

That fund on average in the last thirty years ran at 12% with up to a 5.7% in management fees. Obviously the owner of the fund will not recieve 12% gain now will he? Now if we were to add a Death Ryder if one is available or just go out and purchase some Term then that would lessen the actual return.

Now I have a WL policy on my son, go figure? It has been in place for about three years. I can start stuffing money in it via PUA's which is paying via Mass Mutual about 7.% this year the last time I looked.

https://fieldnet3.massmutual.com/fnmmfg/life/pdfs/li7016.pdf

Just think, NML is doing better!

 

[djs]

James - Go ahead, slow down, speed up, whatever you want. I'm just saying to make sure you accurately compare products that suit the clients goals, and not ignore the expenses on the whole life policy.

Run a 10 year historical both ways, see where you come out. It would be interesting to do this for your original clients situation, not because you would be able to go back to him regardless of the outcome (sounds like he was happy with what he had), but just to see the difference.

Both methods have pros and cons, neither is right for everyone. I personally have both permanent insurance for this, and a 529 on my grandkids, running my own in house test. I know which one is building cash value faster, at least for the time being, but they both have benefits and a purpose.

Personally, I think it is wonderful that there are options.

Dan