Preparing for a child’s future is usually a top parental priority. With the price of a college education continuing to rise, many parents are looking for ways to help pay for their children’s college tuition. What are the options?
Several are available. Finding the option that best suits your family’s needs may seem daunting, as some people find. The early years of your child’s life offer a great opportunity to begin some basic financial planning to help tackle the future cost burden of education.
Two popular vehicles for putting aside money for college are 529 Plans and the Gerber Life College Plan1. To help you decide which one might make the most sense for your family, here’s a summary of their advantages and how they work:
What is the Gerber Life College Plan?
The Gerber Life College Plan is an individual endowment policy that makes planning for your child’s future easier than ever. It matures in 10 to 20 years (your choice) and has an adult life insurance benefit.
An “endowment policy” is a life insurance contract that pays out a lump sum of money upon the policy’s maturity or upon the death of the insured person (such as a parent). This means that the Gerber Life College Plan provides not only a reliable and secure method for planning for college but also the advantages of an adult life insurance policy. It’s designed to give you peace of mind by knowing that you’re protecting your child, with the added bonus of a solution for helping with college expenses.
How the Gerber Life College Plan Works
It’s easy to apply for the Gerber Life College Plan. Simply choose a fixed monthly premium that fits your budget. The premium rate locks in, so the monthly payment amount will never increase. Then, decide when you want the policy to mature, between 10 and 20 years.
As long as premiums are paid, the Gerber Life College Plan assures how much money you’ll receive at the time of maturity, from $10,000 to $150,000, according to the benefit amount you select. When the policy matures, you’re free to use the payout money in any way you choose – for college expenses or anything else, whether or not your child decides to go to college.
The Gerber Life College Plan offers stable financial growth, regardless of economic fluctuations.
What is a 529 Plan?
A 529 Plan, known as a “qualified tuition plan,” is sponsored by states, state agencies, or educational institutions. As notes the Securities and Exchange Commission (SEC), it’s a tax-advantaged savings plan that encourages saving for future college expenses.
Each of the fifty states and the District of Columbia sponsor at least one type of 529 Plan: college savings plans and/or pre-paid tuition plans.
How 529 Plans Work
There are distinct differences in the two types of 529 plans:
Pre-paid tuition plan: in general, allows you to purchase credits for future tuition at participating universities and colleges. In some cases, you can also save for room and board expenses as well. Since they’re sponsored by state governments, most pre-paid tuition plans have residency requirements.
College savings plan: allows you to establish an account for your child, the beneficiary. Typically, you can choose from various investment options, such as bonds, mutual funds, money market funds, or age-based portfolios that automatically shift to more conservative investments as your child approaches college age. It’s important to note that unlike pre-paid tuition plans, college savings plans are not guaranteed by state governments and are not Federally insured.
For any 529 plan, money saved must be used toward college expenses; otherwise, financial penalties could be incurred.
Still have questions about planning-for-college options available to you? For more information, check out our college plan comparison chart to help you weigh various options.
As with any financial matter, consult with a financial consultant or tax specialist for advice concerning your particular situation.
1Policy Form ICC09-PIE, Policy Form Series PIE-09