Should I use a TFRA instead of 529 plan to fund my child’s education.
We often what get asked what is the best plan to fund my child’s education. We thought we would do a comparison and let you decide.
- 529 Plan:
- Purpose: A 529 plan is a tax-advantaged savings plan designed for education expenses. It is typically used for saving for college costs.
- Tax Benefits: Contributions to a 529 plan are not deductible on federal income tax returns, but the earnings grow tax-free, and withdrawals for qualified education expenses are also tax-free.
- Withdrawal Flexibility: Funds in a 529 plan can be used for tuition, room and board, books, and other qualified education expenses at eligible institutions.
- Ownership and Control: The account owner retains control over the funds and can change the beneficiary if needed.
- TFRA:
- Purpose: TFRA uses the rules and laws of insurance to create a tax-free growth account. It is a specialized structured life insurance product that maximizes cash value and minimizes death benefit.
- Tax Benefits: The Cash Value grows tax-deferred, meaning you don’t pay taxes on the gains while they accumulate. When you need to withdraw the funds, you take them out as Policy loans. These loans are backed by the death benefit.
- Withdrawal Flexibility: Policyholders can access the cash value for any reason and not limited to education.
- Death Benefit: In addition to providing a death benefit, the policy may accumulate cash value that can be accessed during the policyholder’s lifetime.
In summary, a 529 plan is specifically designed for education savings and offers tax advantages for qualified expenses. TFRA also provides tax advantages when used properly and unlike 529, the funds are not limited to education. They can be used for Weddings, to buy a house or start a business. The choice between the two depends on your financial goals and priorities. It’s important to carefully consider your individual needs and consult with a financial advisor for personalized advice.