College is EXPENSIVE!!!! The best way for a parent to help their child pay for college, without either the parent or the child going into debt with loans, is to start saving early. Early means the younger the better. with compound interest the longer the period over which you save the more the savings grow. Also the longer the period in which you contribute the smaller the incremental payments.

Assuming no interest, if you were to calculate that $40,000 will be needed for college and you begin putting the money away monthly two years before the child begins college you will have to sock away $1,666.67 per month for 24 months. However, if you start 18 years before you only have to save $185.19. Remember this is without interest. If you factor in the interest that the savings will earn, the monthly payment will be less. Again, the longer the period, the greater the impact of the interest, so the sooner you start the less you will have to contribute each month to reach your goal.

There is always the dreadful fact that there is always a TAX when you have a savings account. This is where Life insurance on the child comes into play.

Life insurance on the child gives a parent both tax sheltering and flexibility in the use of the funds. There are three parties to a life insurance contract: the insures, the owner and the beneficiary. When the child is born the parents take out a policy on the child. Assuming the child is healthy, the parents can purchase a very large policy for a relatively low premium payment. The child is the insured but the parents are the owners and can make themselves the beneficiaries. As payments are made cash builds up in the cash portion of the policy. Under the current Tax laws, the investment income generated by an insurance policy are not subject to income tax. So the cash value grows tax free. When the child is ready for college the parents can cancel the policy and withdraw the cash value or keep the policy and borrow the sash value at a low interest rate. If the child decides not to go to college the parents as owners of the policy , can keep the money in the policy or withdraw it and use it for something else. At some point the parents may want to transfer ownership to the child but they are not required to do so.

Life insurance on a child is not for everyone. However, it is one option that can be considered when planning for your child's college education.

9/20/2012 05:10:40 pm

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