EDUCATION FUNDING – PLAN FOR YOUR LOVED ONE’S COLLEGE TUITION NOW The Tax Payers Relief Act of 1997 not only established the Roth IRA as an excellent tax-free investment vehicle, but also made all other IRAs (Traditional, SEP and SIMPLE) accessible to unrestricted penalty free withdrawals for tuition for higher education. Coupled with increased contribution limitations, IRAs have become a good means of setting aside a college fund for children

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For education savings, grandparents and even parents who had children later in life can also use annuity funds (withdrawn after age 59.5) to support their college bound descendants (children and grandchildren). Or, the family can rely upon the cash value of a whole life or endowment policy for assistance with college funding. All of these funding mechanisms are discussed below.

IRAS

An Individual Retirement Account (IRA) is one of the best and easiest ways to save not only for your own but also your children’s futures. IRA’s have been greatly enhanced by new legislation that brought significant changes to Traditional and Roth IRA’s.

Depending on the type of IRA you choose, the interest you earn may either be tax-deferred or tax free and the contributions you make may even be tax-deductible. Consult your tax advisor to determine your opportunities. The effective growth rate of a 4.50% tax-deferred or tax-free IRA or annuity, as offered by Providence, can be up to 7.38%.

TRADITIONAL IRAS ARE AVAILABLE FOR TUITION

With a traditional IRA, you may be eligible to deduct all or part of your IRA contribution from your taxable income. You pay no taxes on the interest earned on this IRA until you withdraw the funds. Penalties may be imposed for early withdrawals (before age 59.5); however, tuition costs, long-term disabilities, a first time home purchase, and/or catastrophic medical expenses qualify you for early uses of funds.

Enhancements made to the Traditional IRA also include increased contribution limits and increases in the Adjusted Gross Income levels for qualification of active participants in employer sponsored qualified retirement plans. Overall, contribution limits for IRA’s in this tax year are $4,000 (or $5,000 for participants age 50 and older).

ROTH IRAS ARE AVAILABLE FOR TUITION

Eligible taxpayers can make nondeductible contributions to a Roth IRA which features tax-free withdrawals. Contribution limits for IRA’s in this tax years are $4,000 ($5,000 for participants age 50 and older). Penalty-free early withdrawals are available for tuition and qualified first-time home purchases.

ANNUITIES OFFER SUPPLEMENTAL TAX-DEFERRED SAVINGS

If you do not qualify for an IRA, or wish to enhance your savings with additional monies beyond IRA contribution limits, open a Providence Annuity. You will save on taxes and still earn our high current yield of 5.25%. This plan supplements your IRA education or other savings.

In particular, Grandparents who are retired cannot make IRA contributions. However, nothing prevents them from using an annuity to enjoy the advantages of tax deferral for education fund savings for their loved ones. In fact, this use surely falls into the category of a “neat trick”

WHOLE LIFE INSURANCE

When your child reaches college age, your whole life insurance policy’s cash value becomes a convenient vehicle to fund tuition. The policyholder can use the then obtaining cash value for a relatively low interest rate policy loan. Your child’s policy can also be an invaluable resource for college funding as well. Indeed, one of the bonuses of a Providence youth policy is the availability of up to $5,000.00 in college tuition.

ENDOWMENT POLICIES

A very traditional mechanism for funding college tuition, for paying off student loans when they start falling due and/or to give your child an initial stake is to acquire a 20 year endowment policy. This is a cash value policy with a defined lifetime date of maturity that will pay the entire face value, with dividends, at the conclusion of the term of coverage. The best means to fund an endowment is on a Single-Pay basis that will produce dramatic savings. Of course, annual, monthly, semi-annual and quarterly payment options are also available.

Take a look at the description and very affordable rates for ages newborn through age 8, boys and girls.

How do I learn more about Annuities and IRAs ?

         Click on the appropriate “Quick Links” to the left or above. Also, review the articles listed below by clicking on the titles:

        PROFESSIONALS AND SMALL BUSINESS OWNERS' SEP IRA PENSION PLANS

        SMALL BUSINESSES AND PROFESSIONALS SIMPLE IRA PENSION PLANS

        RETIREMENT PLANNING: AVOID “SUPERANNUATION”

    THE LEGACY (STRETCH) IRA ANNUITY (“S-ANNUITY”): DEFER INCOME TAXES AND  CONFER BENEFITS OVER THE COURSE OF SEVERAL FAMILY GENERATIONS

   IRA and ROTH IRA

  PROVIDENCE PLAN ANNUITIES: ACCELERATE SAVINGS AND DEVELOP A LIFETIME INCOME CONTRACT