DEBT DIAGNOSIS

529 — Cre­ated 1996.

Below are the seven 529 ben­e­fits accord­ing to www.SavingForCollege.com

The Mutual Insur­ance Com­pany that I use because it offers a patented specif­i­cally designed Div­i­dend Pay­ing Cash Value Whole Life Insur­ance pol­icy, 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

DPWLI 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 com­pany that we use has 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.

As stated on the savingforcollege.com web­site 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.

As stated on the savingforcollege.com web­site 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 for how he uses the cash value 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, with­out restric­tions. Not lim­ited to 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 cash value por­tion of a whole life insur­ance prod­uct that is avail­able to bor­row against, for any rea­son you wish to.

As stated on the savingforcollege.com web­site 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 use 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.

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 are not tax­able. Please seek the advice of your tax adviser for your par­tic­u­lar cir­cum­stances and your par­tic­u­lar pol­icy design.

As stated on the savingforcollege.com web­site 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.

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 money in the life poli­cies we offer can be used 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.

As stated on the savingforcollege.com web­site 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.

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. 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 because the cash value avail­able equals the amount of pre­mi­ums you have 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, 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.

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:

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 than the actual premium.

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 equals your total of con­tri­bu­tions up to that point in time.

At that point the cost of the death ben­e­fit is actu­ally zero and in fact 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 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.

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.

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.

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.

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 as cash value, this will not be taken into con­sid­er­a­tion when apply­ing for finan­cial aid and so you may qual­ify for more finan­cial aid.

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.

Not only can the 7702 cash value be used 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 your cash value is an impor­tant key to this whole sys­tem and con­se­quences must be under­stand before attempt­ing to with­draw 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.

(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.

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 pay­ing the pre­mium but a small pol­icy on a child is advis­able and will be a future ben­e­fit for the child.

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.

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.