IRC 529 vs IRC 7702 – Saving for College

First of all, what is a 529? (It is the Tax code governing college savings plans) The 529 college savings plan is a state sponsored, tax-advantaged tool that is offered so families can save specifically for qualified higher education expenses for their children. Personally, I do not like to call them ‘savings’ plans due to the fact that they are investments that come with ‘risk of loss’. To me, a ‘savings plan’ means the money is in a safe position with a guarantee of ‘no loss’.

What is a 7702? (It is the tax code governing cash value in life insurance policies). The 7702 col­lege sav­ings plan is not a state spon­sored plan. It is how­ever the Inter­nal Rev­enue Code that describes the tax advan­tages asso­ci­ated with the cash value in life insur­ance prod­ucts.

We show you a way of uti­liz­ing these cash val­ues to fund any expenses includ­ing but not lim­ited to edu­ca­tion expenses, but with much more flex­i­bil­ity of use, while also offer­ing tax advantages.

I must point out now that an IRC 529 is an invest­ment vehi­cle specif­i­cally for sav­ing for qual­i­fied higher edu­ca­tion expenses. On the other hand, the IRC 7702 is the code that relates to the cash value in life insur­ance poli­cies. So it is not gen­er­ally con­sid­ered a sav­ings vehi­cle by the general public. It is a life insur­ance pol­icy.

How­ever, there is one I recommend most; a 106 year old, com­pany that has embraced privatized bank­ing with the cash value within the life insur­ance struc­ture. The pol­icy that is used for this is designed spe­cially for and has a patented software for illustrating max­i­mum cash value accumulation.

Once you under­stand how to use this pol­icy as a financ­ing pool and the advan­tages it pro­vides, I believe you will under­stand why I and many oth­ers believe it is a supe­rior way of sav­ing for and pay­ing for college or any edu­ca­tional expenses. I am not a licensed tax adviser or tax attorney. I am not a licensed financial adviser but I work with a group of people who have been in the financial services industry for 35 years. I AM licensed in life insurance and I am a debt elimination and banking strategist. Please know that this post is for educational purposes only and is not to be construed as professional advice. Seek the proper tax professionals before deciding how you wish to save for college. I am writing this article so you know there is what I consider to be a far superior choice for paying for college. Do your own research. My colleagues and I will be happy to talk to you about our way of savings for college when ever you are ready.

Let it be known I did not read the IRC code books directly. The information I have gathered is from sources that will be listed next to each section of information.

My sources are:

1/ www.savingforcollege.com,

2/ www.sec.gov,

3/ IRS Publication 970,

4/ Wikipedia,

5/ Wall Street Journal,

6/ Whole Life Insurance benefits as taught by the agency I work through and the man who first made this concept public, Nelson Nash.

7/ My own experience. I use this method myself so speaking from experience I know it can be used for college savings when designed correctly and set up with the right insurance company.

Why is it important to know you have a choice? Just look at what was reported in the Wall Street Journal recently. You can read the Wall Street Journal article here, titled,  “The Decline of the 529 College Savings Plan” which is one reason I am writing this article.

I want parents to know of this stupendously, fantastic, alternative to protecting their hard earned money while saving for and protecting the future of their childrens success. Don’t take my word for it either, read what a Forbes magazine article has to say about permanent life insurance here.

I do not want you to end up like these 9 students. Click here to read about 9 student loan horror stories.

This blog post is a comparison of the advantages and disadvantages of the Internal Revenue Code 529 with the 7702 option that is usually overlooked.

I believe we should all be privy to educated choices so we can decide for ourselves whether we want to store money for 18 years or more, (with limited access, minimal control, possible penalties and the possibility of loss of capital along with the definite loss of opportunity to utilize our money more effectively) or find a superior solution to saving for college. With the understanding that Access to Your Capital and the ability to be in Control of Your Cash Flow are the most important keys to creating wealth, I believe the 7702 is a far superior choice for not just saving for college but for utilizing as a major financial vehicle for your lifetime financing needs of which saving for college could be a large part.

Also, if you are already paying off your student loans, I can show you how you could possibly recover most or all of the money being spent on those repayments as well. Just get in touch with me so I can show you how.

Let’s begin this comparison with a short list of the advantages of using the specifically designed for maximum cash value accumulation whole life insurance product with a mutual company, that I will be referring to as 7702 CV from now on, and the college savings plans commonly referred to as 529 plans. As mentioned earlier, they are really college investment plans that come with risk of loss.

Just the four following advantages alone should excite you to want to continue understanding the multitude of benefits saving for college using the 7702 CV plan has in comparison to the 529 plan.

Using the 7702 CV concept has many advantages above and beyond a 529 plan.

For example, funds in a 529 plan:

– Are subject to market fluctuations.

– Cannot be used for expenses not related to education (i.e cars, transportation, clothes, utilities, etc).

– Must be used before need based financial aid is awarded.

– Cannot be transferred without penalties or taxes to your child after they graduate.

On the other hand, funds in your 7702 Plan:

– Are not subject to market fluctuations.

– May be used for anything, even to help pay for your child’s first car. It is not limited to qualified educational expenses alone. Penalty free access.

– Is not a determining factor when financial aid is being awarded.

– Can be owned and controlled by you or gifted to your children at a later date, penalty free.

Following is the Comparison of the IRC 7702 with

the top 7 benefits of the IRC 529 plan as described on the website

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529 – Created 1996.

Below are the seven 529 benefits described on the www.SavingForCollege.com website as of the date of this post.

The Mutual Insurance Company that I recommend most often owns a patented software that designs Dividend Paying Cash Value Whole Life Insurance illustrations with Maximum Cash Accumulation. The company has been around since 1904, before the IRS came into existence. The 7702 code was created to legalize the tax advantages when the IRS was formed.

 Below are some of the multitude of 7702 benefits

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Federal tax benefits

As stated on the savingforcollege.com website at the time of this writing, 529 plans offer unsurpassed income tax breaks. Although your contributions are not deductible on your federal tax return, your investment grows tax-deferred, and distributions to pay for the beneficiary’s college costs come out federally tax-free. The tax-free treatment was made permanent with the Pension Protection Act of 2006.

Dividend Paying Whole Life Insurance policy premiums are also not deductible on your federal or state tax returns. The guaranteed interest grows tax-deferred, and is usually  accessible income tax free if withdrawn properly (as a loan).

However, the non-guaranteed dividends are earned income tax free because they are considered a return of premium. The companies that we use have paid non-guaranteed dividends for over 100 years, consecutively.

So in most cases, all growth is accessible tax-free if accessed correctly.

See disclaimer here.

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State tax benefits

As stated on the savingforcollege.com website at the time of this writing; Your own state may offer some tax breaks as well (like an upfront deduction for your contributions or income exemption on withdrawals) in addition to the federal treatment.

You should research what benefits residents receive for investing in your own state’s 529 plan…here. If you don’t get any benefits from your state, you have the pick of every 529 plan on offer…so compare plan features…here.

The same statement is true with the state as with the federal tax benefits as seen above.

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Donor retains control of funds

As stated on the savingforcollege.com website at the time of this writing; You, the donor, stay in control of the account. With few exceptions, the named beneficiary has no rights to the funds. You are the one who calls the shots; you decide when withdrawals are taken and for what purpose.

Most plans even allow you to reclaim the funds for yourself any time you desire, no questions asked. (However, the earnings portion of the “non-qualified” withdrawal will be subject to income tax and an additional 10% penalty tax).

Compare this level of control to a custodial account under the Uniform Transfers to Minors Acts (UTMA) and you will find the 529 plan gives you much more say in how your investment is used!

With a 7702 the donor/owner of the policy has full control of how he utilizes the cash value he collaterlizes within the 7702. However, unlike the 529, there are no taxes or penalties for withdrawal of the principal proceeds or the growth within the 7702, if withdrawn correctly. You always have the right to choose (no questions asked) how you want to use the funds that you have available in your cash value to collateralize, without restrictions. In other words you are not limited to spending the money only on higher qualified education.

The 7702 is not an investment so you do not need to decide which is the best option for you to invest in. It is the tax code that governs the cash value portion of a whole life insurance product that is available to borrow against, for any reason you wish to.

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Low maintenance

As stated on the savingforcollege.com website at the time of this writing; Third, a 529 plan can provide a very easy hands-off way to save for college. Once you decide which 529 plan to use, you complete a simple enrollment form and make your contribution (or sign up for automatic deposits).

Then you can relax and forget about it if you like. The ongoing investment of your account is handled by the plan, not by you. Plan assets are professionally managed either by the state treasurer’s office or by an outside investment company hired as the program manager.

With a 7702 CV plan you can choose to have it as a hands-off experience of saving and have monthly contributions automatically deducted from your account if you wish. However, because the 7702 is not an investment there is no need for paying to have it managed professionally.

You do not have to hire a program manager. It actually creates a pool of capital you can utilize via collateralization at any time for any reason. We consider YOU having full, penalty free, CONTROL of this pool of capital one of it’s main advantages. We don’t like to forget about our money and give it’s control to someone else. Also, with the worry of a possible loss of investment, it doesn’t make it so easy to relax and have a great nights sleep if there is no no-loss guarantee as part of the contract.

 

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Simplified tax reporting

As stated on the savingforcollege.com website at the time of this writing; You won’t receive a Form 1099 to report taxable or nontaxable earnings until the year you make withdrawals.

There are no special tax reporting forms for the 7702 CV because when withdrawn properly, (as a loan), the proceeds are non taxable whether used for higher education or not.

The premiums are not tax deductible but if withdrawn correctly, the guaranteed and non guaranteed growth portions can be accessed not taxable. Please seek the advice of your tax adviser for your particular circumstances and your particular policy design.

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Flexible

As stated on the savingforcollege.com website at the time of this writing; If you want to move your investment around you may change to a different option in a 529 savings program every year (program permitting) or you may rollover your account to a different state’s program provided no such rollover for your beneficiary has occurred in the prior 12 months.

Hint: There is no federal limit on the frequency of these changes if you replace the account beneficiary with another qualifying family member at the same time. Each 529 plan will have different rules that may impact the number of changes you can make, so compare the features of individual plans…here if flexibility is important to you.

I believe that every time you move your money from one investment to another it costs you in management fees. The worry of trying to decide where the best place for your money to reside would keep me up at night. “HOPE” is not a safe financial strategy in my book.

Who has time to research and compare every year? Having Flexibility within the rules, regulations and restrictions of the 529 plan isn’t real flexibility, as far as I’m concerned.   In general the type of life insurance we use has a guarantee of no loss of principal and guaranteed growth along with non-guaranteed dividends. So no need to keep deciding where to move your money to.

The life insurance policies we design can be utilized for any of your children, yourself or anyone you choose to give or lend it to for any reason, whether higher education, to buy a new car, to start a business, to lend to an existing business, to take a vacation or to pay for college tuition, to name a few. That is what I call true flexibility. The use of your money is only restricted by your imagination.

The real magic of a policy, when designed and uti­lized prop­erly, is that it allows you to finance your own life. It can pro­vide sta­ble growth, cash value col­lat­er­al­iza­tion, guar­an­teed loan access, no annual tax on growth and death ben­e­fits. Addi­tional ben­e­fits are avail­able with addi­tional pol­icy riders. It can help capture the current lost opportunity of buying financing through someone else’s bank or by paying with cash where you lose the opportunity to earn interest on those spent dollars, for ever more.

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Substantial deposits allowed

As stated on the savingforcollege.com website at the time of this writing; Everyone is eligible to take advantage of a 529 plan, and the amounts you can put in are substantial (over $300,000 per beneficiary in many state plans).

Generally, there are no income limitations or age restrictions. Thinking about going back to college or graduate school in the future?

Then set up a plan for yourself! So that means $300,000 over 18 years = $16,666,66 per year is the maximum contribution into a 529 plan, per beneficiary.

Ask your 529 planner if they can provide you with a predictive illustration of what your ‘investment’ may look like over eighteen years for comparison with an illustration showing guaranteed and non guaranteed cash value in our specially designed life insurance policies.

See below for illustrations of what the same amount of money can do for you when turned into 7702 CV, as of Dec 2010.

Depositing the same $16,666.66 every year for 18 years into  cash value permanent life insurance, 7702,  provides many more benefits as you will see as you continue reading the comparisons.

By the end of year three, the cash value increases more than the annual premium paid. This increase of cash value generated by the same amount of annual premium continues until you are no longer allowed to pay more premiums at age 90, on the example policy design. The policy continues to grow and stay in force until age 121.

Also, please notice that after 6 years, the death benefit side is basically free (in a way) because the cash value available to collateralize equals the amount of premiums paid. The death benefit has been growing at the same time you have been recouping your cost of insurance.

Of course the numbers depicted in this illustration will vary according to when you purchase the policy, your age, gender, health, premium etc.

You get more bang for your buck plus protection in case the breadwinner/insured passes before the beneficiary finishes college.

Click on the illustration below to enlarge.

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That is the end of the comparison between the 7 benefits of 529 plans as described on www.savingforcollege.com and the alternative, 7702 CV plan.

But let us compare these two college saving plans further .

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Fees and Expenses

sec.gov reports the fol­low­ing. What fees and expenses will I pay if I invest in a 529 plan? It is impor­tant to under­stand the fees and expenses asso­ci­ated with 529 plans because they lower your returns. Fees and expenses will vary based on the type of plan.

Pre­paid tuition plans typ­i­cally charge enroll­ment and admin­is­tra­tive fees. In addi­tion to “loads” for broker-sold plans, col­lege sav­ings plans may charge enroll­ment fees, annual main­te­nance fees, and asset man­age­ment fees. Some of these fees are col­lected by the state spon­sor of the plan, and some are col­lected by the finan­cial ser­vices firms that the state spon­sor typ­i­cally hires to man­age its 529 pro­gram.

Some col­lege sav­ings plans will waive or reduce some of these fees if you main­tain a large account bal­ance or par­tic­i­pate in an auto­matic con­tri­bu­tion plan, or if you are a res­i­dent of the state spon­sor­ing the 529 plan.

Your asset man­age­ment fees will depend on the invest­ment option you select.  Each invest­ment option will typ­i­cally bear a portfolio-weighted aver­age of the fees and expenses of the mutual funds and other invest­ments in which it invests.

You should care­fully review the fees of the under­ly­ing invest­ments because they are likely to be dif­fer­ent for each invest­ment option. Investors that pur­chase a col­lege sav­ings plan from a bro­ker are typ­i­cally sub­ject to addi­tional fees. If you invest in a broker-sold plan, you may pay a “load.” Broadly speak­ing, the load is paid to your bro­ker as a com­mis­sion for sell­ing the col­lege sav­ings plan to you.

Broker-sold plans also charge an annual dis­tri­b­u­tion fee (sim­i­lar to the “12b 1 fee” charged by some mutual funds) of between 0.25% and 1.00% of your invest­ment. Your bro­ker typ­i­cally receives all or most of these annual dis­tri­b­u­tion fees for sell­ing your 529 plan to you.

Many broker-sold 529 plans offer more than one class of shares, which impose dif­fer­ent fees and expenses. Here are some key char­ac­ter­is­tics of the most com­mon 529 plan share classes sold by bro­kers to their customers:

Class A shares typ­i­cally impose a front-end sales load. Front-end sales loads reduce the amount of your invest­ment. For exam­ple, let’s say you have $1,000 and want to invest in a col­lege sav­ings plan with a 5% front-end load. The $50 sales load you must pay is deducted from your $1,000, and the remain­ing $950 is invested in the col­lege sav­ings plan. Class A shares usu­ally have a lower annual dis­tri­b­u­tion fee and lower over­all annual expenses than other 529 share classes. In addi­tion, your front-end load may be reduced if you invest above cer­tain thresh­old amounts – this is known as a break­point dis­count. These dis­counts do not apply to invest­ments in Class B or Class C shares.
Class B shares typ­i­cally do not have a front-end sales load. Instead, they may charge a fee when you with­draw money from an invest­ment option, known as a deferred sales charge or “back-end load.” A com­mon back-end load is the “con­tin­gent deferred sales charge” or “con­tin­gent deferred sales load” (also known as a “CDSC” or “CDSL”). The amount of this load will depend on how long you hold your invest­ment and typ­i­cally decreases to zero if you hold your invest­ment long enough. Class B shares typ­i­cally impose a higher annual dis­tri­b­u­tion fee and higher over­all annual expenses than Class A shares. Class B shares usu­ally con­vert auto­mat­i­cally to Class A shares if you hold your shares long enough.Be care­ful when invest­ing in Class B shares.  If the ben­e­fi­ciary uses the money within a few years after pur­chas­ing Class B shares, you will almost always pay a con­tin­gent deferred sales charge or load in addi­tion to higher annual fees and expenses.
Class C shares might have an annual dis­tri­b­u­tion fee, other annual expenses, and either a front– or back-end sales load. But the front– or back-end load for Class C shares tends to be lower than for Class A or Class B shares, respec­tively. Class C shares typ­i­cally impose a higher annual dis­tri­b­u­tion fee and higher over­all annual expenses than Class A shares, but, unlike Class B shares, gen­er­ally do not con­vert to another class over time. If you are a long-term investor, Class C shares may be more expen­sive than invest­ing in Class A or Class B shares.

Is there any way to pur­chase a 529 plan but avoid some of the extra fees?

Direct-Sold Col­lege Sav­ings Plans.

States offer col­lege sav­ings plans through which res­i­dents and, in many cases, non-residents can invest with­out pay­ing a “load,” or sales fee.  This type of plan, which you can buy directly from the plan’s spon­sor or pro­gram man­ager with­out the assis­tance of a bro­ker, is gen­er­ally less expen­sive because it waives or does not charge sales fees that may apply to broker-sold plans.

You can gen­er­ally find infor­ma­tion on a direct-sold plan by con­tact­ing the plan’s spon­sor or pro­gram man­ager or vis­it­ing the plan’s web­site. Web­sites such as the one main­tained by the Col­lege Sav­ings Plan Net­work, as well as a num­ber of com­mer­cial web­sites, pro­vide links to most 529 plan websites.

Broker-Sold Col­lege Sav­ings Plans.

If you pre­fer to pur­chase a broker-sold plan, you may be able to reduce the front-end load for pur­chas­ing Class A shares if you invest or plan to invest above cer­tain thresh­old amounts. Ask your bro­ker how to qual­ify for these “break­point dis­counts.”

In general the whole life insurance policies that we design have some start up costs. One has to pay for the death benefit. But at the third year your annual contributions generate more cash value to collateralize than the actual premium paid. (This depends on the policy design and your age, your health etc.)

Each year thereafter your annual contributions remain the same, but generate a higher and higher amount of available cash value. After approximately six years (depending on your age, health and premium amount) the cash value available to collateralize equals the total of contributions up to that point in time. At that point the cost of the death benefit could be considered to be zero.

From then on you are earning growth that is assessable tax advantaged without limitation or penalties, all while the death benefit continues to grow as well. Click on any of the three 7702 illustrations in this post to confirm this information.

Other than the cost of buying the death benefit, any costs associated with running the insurance company are internal and because we use a mutual insurance company, any profits the company makes, after expenses, come back to you in the form of tax-free dividends.

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Transferable

Wikipedia reports the following Another benefit associated with 529 Plans is the ability to transfer unused amounts to other qualified members of the beneficiary’s family without incurring any tax penalty[2].

According to the IRS website (Publication 970), this type of transfer is known as a Rollover and is explained at length in their Qualified Tuition Program (QTP) section.

Any amount paid to another QTP within 60 days of distribution is considered Rolled Over & does not require reporting anywhere on Form 1040 or 1040NR. Qualified members of the Beneficiary’s family include:

  1. Spouse
  2. Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them.
  3. Brother, sister, stepbrother, or stepsister.
  4. Father or mother or ancestor of either.
  5. Stepfather or stepmother.
  6. Son or daughter of a brother or sister.
  7. Brother or sister of father or mother.
  8. Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
  9. The spouse of any individual listed above.
  10. First cousin.

The owner of the 7702 CV can choose who will benefit from the cash value while they are alive. . The owner can rollover to another 7702 in a different company if they choose to, with no tax consequences.

They also choose who the beneficiary/ies will be when they pass away. The owner may also transfer ownership of the 7702 if they choose to.

Because this type of policy is consiered to be an asset, you can also sell it, if you choose to.

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Non-Guaranteed and Guaranteed Growth

I do not believe the 529 plan offers any guarantee that your principal will grow or even that you will not lose some or all of your principal if the management team invests your money poorly. And according to the SEC this is true. (As reported by U.S. Securities and Exchange Commission) Investments in college savings plans that invest in mutual funds are not guaranteed by state governments and are not federally insured.

Most investment options are subject to market risk. Your 529 savings plan investment may make no profit or even decline in value. (As reported From Wikipedia) There are two types of 529 plans: prepaid and savings.Prepaid plans allow one to purchase tuition credits, at today’s rates, to be used in the future.

Therefore, performance is based upon tuition inflation. Savings plans are different in that all growth is based upon market performance of the underlying investments, which typically consist of mutual funds. Most 529 savings plans offer a variety of age-based asset allocation options where the underlying investments become more conservative as the beneficiary gets closer to college age.

In certain circumstances where a 529 account has experienced investment losses over the term of its existence, the contributor to the account may withdraw the funds and have the losses deducted from taxable income (but not counted as such for Alternative Minimum Tax purposes).[3]

The 7702 plan has both guaranteed and non-guaranteed growth. If you click on the illustration above it will enlarge so you can see that, in this particular example, at the end of 18 years and after you have saved the equivalent to the full amount allowed in a 529 plan, $300,000, your money has grown to be $367,400, guaranteed.

You will also notice that you will most likely earn non-guaranteed dividends and so your money will possibly grow to be $418,677. The company I recommend for holding the 7702 has paid dividends for over 100 years consecutively, so the chance of being paid a dividend every year is more than excellent, it is probable.

 

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Financial Aid

As reported on (sec.gov) While each edu­ca­tional insti­tu­tion may treat assets held in a 529 plan dif­fer­ently, invest­ing in a 529 plan will gen­er­ally reduce a student’s eli­gi­bil­ity to par­tic­i­pate in need-based finan­cial aid.

Beginning July 1, 2006, assets held in pre-paid tuition plans and col­lege sav­ings plans will be treated sim­i­larly for fed­eral finan­cial aid purposes. Both will be treated as parental assets in the cal­cu­la­tion of the expected fam­ily con­tri­bu­tion toward col­lege costs.

An IRC 7702 is the tax code governing the cash value in a life insurance policy. It is NOT considered an asset as far as colleges are concerned, as of 2010 when this post was written.

Nowhere on your application will you have to reveal the amount of cash value in your policy.

Therefore, even if you have $300,000 available to collateralize, this will not be taken into consideration when applying for financial aid and so you may qualify for more financial aid.

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Death Benefit Safety

One never knows what the future brings. If the person providing the funding for the 529 plan happens to pass away before there is enough money saved for a college education, the beneficiary of that college education funding may not be able to go to or complete college.

However, a 7702 plan does have a death benefit, that grows each year as more and more money is paid in premiums and generates growth build up in it. The death benefit provides a safety net that could provide the funding necessary for the college education intended in case of such a tragedy.

In the above illustration the guaranteed death benefit after eighteen years is $1,167,271 and the non-guaranteed death benefit is $1,365,025. So your college savings is buying a wonderful death benefit at the same time with the same money. Now that is true safety.

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For Education Only or Penalties

(As reported From Wikipedia) The earnings portion of money withdrawn from a 529 plan that is not spent on eligible college expenses will be subject to income tax and an additional 10% federal tax penalty, and the possibility of a recapture of any state tax deductions or credits taken.

Not only can the 7702 cash value be used as collateral for any type of education, but also, if your child would rather start a business or travel the world, or be a musician, the funds can be used for anything at all. You choose to use them for whatever, without penalty. You control what your money is spent on.

Understanding how to properly collateralize your cash value is an important key to this whole system and consequences must be understand before attempting to utilize cash values from your life insurance policies. There is a right way and a less beneficial way. Speak with a banking with insurance specialist before utilizing your cash values.

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Gift Tax Considerations

(As reported From Wikipedia) Contributions to 529 plans are considered gifts under the federal gift tax regulations and hence any contributions in excess of $13,000 ($65,000 if filing single over five years) or $26,000 ($130,000 if filing married jointly over a five-year period) per donor count against the one-time gift/estate tax exemption.

The five-year period is known as the five-year carry-forward option: Once the single donor puts in $65,000 or the married jointly donor puts in $130,000, they are not able to make another contribution (gift) to that individual (without using part of their lifetime gifting exclusion) for five years.

Since tuition payments are not subject to the annual gift limitation, parents who are trying to minimize estate taxes may be better off making their annual gifts to another vehicle such as a Uniform Transfers to Minors Act (UTMA) account and then paying the tuition directly.

Speak with your tax adviser about gift taxes for both 529’s and 7702’s

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Insurability

A 529 has nothing to do with insurance except to speculate a sort of insurance that you will hopefully have some money saved for your kids college in the future. Becuase a 529 has no guarantees and does carry the possibility of loss, HOPE is the financial strategy that is recommended when using this type of financial vehicle.

How many parents want to protect the insurability of their children for a lifetime? The way to do that is to begin a 7702 as soon as they are born. This way, even if the child becomes un-insurable at any future point during their life, they will still be able to buy PUA’s in the 7702 which will continue to increase the death benefit and the cash value over their lifetime.

Below are two illustrations where the premium between both is still equal to the $16,666.67 allowed in a 529 plan per beneficiary. Obviously it is better to insure the parent or the one who is saving for the college tuition with the premiums but a small policy on a child is advisable and will be a future benefit for the child.

What a great graduation gift or wedding gift or teaching tool so they can finance their own first car by borrowing from the insurance company using this policy as collateral and then paying that money back, refilling their collateral capacity and teaching them how to finance their own lives from their very first purchase. Protecting their insurability is a must.

 

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Private Banking System Capital

You work to earn money which you then deposit into a specific account in someone’s (bank) that you must pay someone to manage. That (bank) then has very cheap use of that money for possibly 18 years or more.

They then velocitize your money while you keep working and depositing and paying management fees growing their wealth. Oh, but you get minimal so-called tax advantages as an enticement to follow this plan but the penalties and restrictions and the lack of guaranteed growth far outweigh that so-called benefit.

Tax advantaged in this case means tax-deferred, (pay taxes at a later date when you withdraw the money) or under certain restrictions some of it is tax-free on a federal level. You are expecting the managers will grow your money over that time frame, but if they don’t, they still get paid. And there are no consequences to them, if there is a loss.

You work to earn money which you then deposit into a specific account in a (banking system) YOU OWN. You do not have to pay management fees. You do have a choice of whether you want to pay a cash flow coach to teach and train you how to manage and track your own money though, for as long as you like.

Now you have very cheap use of your money for the possibly 18 years or more. You can now velocitize your money while you keep working and depositing into your banking system, growing your own wealth, creating a very bright future for yourself and your family.

Oh, and one of the many advantages of the 7702 is that you can access your capital and growth tax advantaged also. But tax advantaged in this case means Income Tax Free, when done correctly.

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Bankruptcy.

Bankruptcy does not eliminate any educational debts. Because a 529 is considered to be an asset, it is possible you will lose your asset in a bankruptcy, law suit or a judgment.

Varying by state, at least a portion if not all the money in your 7702 is free from bankruptcy, law suits and judgments. Check with your attorney in your state.

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There are only two sources of income – People at Work or Money at Work.

The IRC 529 is an example of People at Work. One of the most important considerations when deciding whether you would want to start a 529 or a 7702 for your child is cash flow. Do you have easy access to your money or are you restricted in how you can use it, when you can use it, and what you can use your money for, for up to eighteen years or more.

What does tax deferred really mean and does it really benefit you? Basically your money is in jail in a 529 but is free in a 7702. I encourage you to really take the time to research and contemplate why we are all encouraged by many “financial experts” to separate our money into individual boxes. Save for college in this. Save for retirement in that. Save for emergency fund in this. Pay for insurance in that. Etc. Etc.

The IRC 7702 is an example of Money at Work. Wouldn’t you prefer to learn how to multi-task the same dollar so it can pay for your life insurance providing the safety of a death benefit for your loved ones. The same dollars paying for the life insurance can also provide a living benefit of college tuition costs as well as your retirement.

It can also be building a pool of capital you can utilize even further during the eighteen years by borrowing from it and paying it back (for say a car) instead of losing that loaned principal and interest to some other banking institution, which further increases the growth of your money. Multi-tasking your money is a huge key to building wealth by having it working for us instead of just us working for our money.

If you are paying off college loans now or if you have deferred your college loans, you must get the tuition.io software which helps you track all your individual loans and helps you decide which ones to pay off first, second third etc. It is in beta mode right now and so if free of charge to use.

CONTACT ME NOW SO I CAN SHOW YOU HOW YOU CAN BENEFIT FROM OWNING YOUR OWN PRIVATE BANKING SYSTEM THAT CAN BE USED AS A SAVINGS PLAN FOR COLLEGE – Jennifer Hansen 845-649-7487 __________________________________________________________________________________

Please Read This DISCLAIMER

College Savings Comparison

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December 23, 2010 · Jennifer · 6 Comments
Tags: , , , , , , , , , , , , , ,  · Posted in: 529 vs 7702, A different way of saving for college

6 Responses

  1. lyn - June 2, 2013

    Thank you so much for your wonderful post. It really helps me decide on my family’s future.. God bless you.

  2. Jennifer - June 5, 2013

    You are welcome Lyn. Thank you for your comment. If would like help setting up the correct type of life policy please feel free to contact me directly at 845 649 7487.

  3. Rolando Javier - October 23, 2013

    Hi!

    I want to learn more about how I could use IRC 7702 to help with student loans. I know a few people who are paying off their student loans and it seems that you know of a way to recover their repayments, based on your article. Also, could you tell me how I can get hold of the software you mentioned that calculates the accumulation values?

    Thank you!

  4. Jennifer - October 28, 2013

    Hi Rolando,

    Please email me at Jennifer@DebtDiagnosis.com

    The free tuition tracking software is found here – http://debtdiagnosis.com/2013/03/31/free-tuition-software-for-tracking-student-loan-details/

    Another money tracking software I use can be found here http://debtdiagnosis.com/free-debt-elimination-analysis-through-worthunlimited/

  5. christina - February 2, 2014

    Hi, what financial institution do you recommend? I noticed you brought it up a couple times, but did not name one unless I missed it.

  6. Jennifer - February 3, 2014

    I will email you my response Christina

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