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Posted on 3/10/10 at 4:17 pm to Broke
quote:
Horrible idea. Life insurance is not an investment. It's life insurance.
In addition, unless you set it up with a huge face amount, the type of money the grandparents are giving creates a modified endowment contract (MEC) and withdrawals prior to 59 1/2 are penalized 10% and taxed as ordinary income! Not too good!
Posted on 3/11/10 at 8:50 am to Count Chocula
I over fund a whole life policy on each of my kids for college savings. You are correct, you wouldn't want them to MEC, so you set it up correctly so it won't. There is nothing wrong with 529 plans, but they HAVE to be used for college expenses. In a realistic world, there are MANY MANY things that could effect them needing college funding. Overfunding a permanent policy provides plenty of tax free, non penalizable money that I/they can access with no limitations. If not needed for college, they will be able to use it for down payment on house, wedding, etc.
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