This beats a 529 plan. In this episode, we are going to answer the question, "What is
the best way to save for kids college?" I'm Doug Andrew. Put on your seatbelt.
Don't ever think of a 529. Do something far better. So, I'm Doug Andrew. And if
this is your first time viewing an educational episode, welcome. If you've
seen others, welcome back. You probably know if you have seen other educational
videos that I'm very passionate about helping people as the opportunities that
maybe they didn't know existed before. And I've trained many financial advisors
and CPAs and tax attorneys. And a lot of people get convinced to save for their
children's college by using the government 529 plan. So, let me explain
that first and show you why there's something far better. Whenever you see
numbers in a plan like 401K or 457 or 403B or this 529 plan, these are
sections of the Internal Revenue Code that allow for some type of tax
advantaged savings that you have to comply with in the Internal Revenue Code
in order to get the tax advantages. And so they all come with strings attached.
Even a Roth IRA or 401K is a qualified plan that has limits.
So, the 529 plan was created for families parents who wanted to save for their
children's college education or maybe the children were contributing to it.
Which is a good idea. Now, if you watch some of my other episodes, I'm not a big
proponent of just paying for all of your kids college education. In our family, we
require skin in the game. And so, simply put in our family
bank if any of our children or grandchildren need help with college,
they have to go out and work hard get scholarships. I save money and maybe for
every dollar they save or get in a scholarship,
we might match dollar for dollar up to one PhD. But we want them to earn their
way through college. I worked at Kentucky Fried Chicken 30 hours a week. When I was
in school, I got scholarships for grants the loans. I never expected my parents to
pay. My wife same thing she worked at a bookstore 30 hours a week. Some of our
friends whose parents just shelled it out.
We saw them goofing off and everything. They just felt like.. They were entitled.
Their parents owed them a college education. And they sort of carried that
entitlement mentality after graduation. "Oh, no. The world owes me a living." I
didn't want that entitlement mindset. Now, for money that we did set aside for long
term goals for education in our family bank, I never ever considered a 529 plan
because a 529 has strings attached. It's sort of like a Roth. Now, you usually set
aside after-tax money but it grows tax-free. So, that's an advantage just
like a Roth. It grows tax-free. And then when you go to take money out for your
children's college tuition, it has to be for certain college expenses. And there's
a list of it in section 529. Then you don't have to pay tax on the money you
made. You put in after-tax dollars. So, you paid tax on the seed money. You're
enjoying the harvest without tax sort of like a Roth. The problem is just like a
Roth. There's too many strings attached. You can only set aside a certain amount
each year. Not very much. There's limits how much you can put in and how you
access it. If you touch it, before the college age and there's a penalty and so
forth. I don't like any of those strings attached. So, people say, "Well, what's
better?" Well, hands down, my dream solution for
several goals is a max-funded tax advantaged insurance contract. I prefer
an indexed universal life insurance contract. And I call it the Laser Fund. So,
there's other episode it's here that you can watch to
understand how this works. But let me tell you for college funding how this
would work better than a 529 plan. So, when I set aside money that's fear
marked for my children or grandchildren is college education funding, if I put it
into a max-funded tax-advantaged insurance contract. And I prefer the
indexed universal life, in other episodes, I illustrate and in my books how I have
averaged over 10% rate of return net cash on cash on my index Universal
Life contracts. I maximum fund them. So, let's just assume we are doing that here.
And frankly, most 529 plans where people invest it. That they don't earn 10%.
So, I earn a better rate of return. But it's tax-free also. I fund it
with after-tax dollars. I can keep my tax deductions other ways with my real
estate and so forth. So, I actually indirectly fund my dream solution for
retirement or college funding or business with 100% tax advantage
dollars on the seed money. But I do it by getting deductions indirectly. Otherwise,
you're funding it with after-tax money. But it's growing tax-free. And its
earning a great rate of return and it's tax-free when you take it out. But what
else is the difference? Well, sometimes I have seen many parents or grandparents
saving for their children or grandchildren's college. And they pass
away. They have a stroke. They check out earlier than they thought. So, they don't
have the wherewithal to keep funding that. The reason why I like the laser
fund is because it blossoms instantly in value and transfers tax-free. So, for my
children, I put money in a Laser Fund and if I would have died, every
100,000 that I saved in there, if I died would blossom to at least 250,000
instantly if I die. And transfer tax-free. In other words, it was self funding in
case I didn't stay around. Now, I did stay around. So, if I live and it grows at
10% it's going to be a bigger nest egg, I can put in more money. There's not
limit. So, you can only put in 2,000 a year. You can only put in this
much. You can't touch it. If I need to, I can take money out. I can borrow it out
at 5% and keep earning 10. I can use it for all kinds of other purposes. It's not
just used only for college. But if I earmark it for that, I'm earning a better
rate of return. It's still tax-free. I can throw in some years, 20,000.
50,000 if I wanted to. You can't do that in a 529. If all of a sudden, I
put in 50 grand. And I need 40,000 back, I can take it back out
4 days later. You can't do that with a 529 without incurring penalties and
paying tax. And when I ultimately pass away, sooner or later, it blossoms and
transfers tax-free. But here's the kicker: When my kids did need some help and I
might match them dollar for dollar on a semester abroad in Israel or Egypt or
New Zealand which many of my kids went on, I was able to instead of withdrawing
money out of the Laser Fund and just paying for the fee or the tuition, I
borrow. So, if I have 200,000, if I have 500,000,
it doesn't matter what's in the fund. Instead of withdrawing money, I borrow it
at usually 5% interest. And the insurance company keeps crediting me they indexed
rate. I have borrowed at 5 and they keep paying me 10. How much more is 10
than 5? 100% more. If I had a million and I pulled out a
million dollars out of that fund, they charged me 50,000 but they
credit me 100,000. I made 50,000 while I was paying for
their college. There have been years like 2017 where we had clients borrowing
money for for college funding at 5 percent out of their Laser Funds and
they kept earning 25 that year. They were netting 20% on
their money in the insurance contract while they were using the money to pay
for college. Do you see why that knocks the socks off of it any 529 plan? You can
put in more money, you can take it out without penalties. When you die, it
blossoms. You can borrow it out and keep earning interest on the money while
you're funding your kids and grandkids college. That's why it'll knock the socks
off of a 529. And it's the dream solution for college funding as well as many
other things. So, I would strongly recommend you watch this episode and
understand the basics behind this in the Internal Revenue Code, why is tax free,
why it's so flexible. And in that episode, you'll be given the opportunity to
receive free a copy of my most recent best-selling book the Laser Fund over
300 pages of charts graphs explanations. And also 62 actual stories of how the
Laser Fund is a dream solution for things like college funding for your
kids.