I recently had the pleasure of watching a financial advisor take the savings a business owner has from the property & casualty premiums and put the money into a 529 college savings plan for the kids. When I say pleasure, it literally made my skin crawl. A 529 plan represents everything a business owner should not do, and I can give you 529 reasons why.
I am not going to waste time listing all 529 reason why this is not a good idea. You can do a google search and the internet is full of the reasons. I will stick to the main principle.
It’s called……… “CASH FLOOOOOOW!” Not only is the money ear marked specifically for college expenses, if the market does not perform then the fund can be detrimental to the whole plan! Imaging having saved 100k right before the year 2008. The market drops 75% and now you plan only has 25k in it. Not a lot of help for college. In the meantime, your business is financing the insurance plans at 15%. What if the same dollar could be used to save this 15% and provide cash for flexible spending at the time the child reach college age. Maybe they are on a scholarship and need a car not tuition. Maybe the parent dies prematurely, and the savings stops completely. These are all consideration a business owner has to make before locking their CASH in a plan with limited to no flexibility.
The solution: Dividend paying Whole life insurance. There, I said it! Let’s say for example you are putting $10,000 a year into a 529 and you are getting a 6% return. In ten years, there would be $149,716 in the plan. Sounds like a great deal. Structured correctly, a whole life policy would have almost the same amount of cash, plus a death benefit. You also have flexibility to spend the money however one might see fit, and not what the government allows. But wait, there is more. If the owner of the policy gets disabled, the policy could continue making the payments. So, it has a disability feature as well. But wait, there is more. The owner of the policy can use the cash value to pay for property & casualty insurance premiums each year to reduce finance charges. I have seen these as high as 22%! So, if I could save $2200 on a $10,000 business insurance premium per year and redirect that money back into my policy, that would create another $22,000 plus the interest gains on those dollars. But wait there is more. The $10,000 I used for paying the business insurance never actually left the policy. It continued to grow at the same rate with what is called uninterrupted compounding. I would have my $149,000 plus $22,000 plus the interest on the $22,000.
But wait, there is more. What if when the child reaches college age, and I was able to take out a student loan. Student loans grow tax free while the child is in college. The account would grow to almost $200,000 plus the $2,200 a year for the business savings. This would give us roughly $210,000. We can then pay off the student loan and continue to see the growth of the cash value of the amount that was in the policy. The money never actually leaves the policy. In 18 years, that would grow to $529,000. <——- That is a better 529 plan.
These are hypothetical numbers. Real numbers may vary. I hope you get the concept of double duty dollars. Making $1 do multiple things.
Things we get with Life Insurance:
- Tax deferred growth
- Tax free with drawls through policy loans
- Asset protection
- Death Benefit
- Disability waiver of premium
- Free from government control
- Flexibility to use however one sees fit
- Options
- Save returns on cash
- Accessibility
The list goes on and on.
If you want to understand more, there is a lot to learn. Start by watching this video of the story of Nelson Nash. The book he has written has changed the way we look at money. The microplanning of 529 plans is pandemic. Leaning how to create an economy of money outside of government control is the difference in a child maybe not even having the money to go to college. Take some time to learn the concept. Here is a link to the video: This is Nelson Nash – The Official Site for the Infinite Banking Concept – R. Nelson Nash.
When you are ready to read the book, let me know. I would love to go through it with you.
-Brent White