by Sam Rawls
When should parents start saving for their children’s college expenses? What is the best way to start?
Parents should begin saving for college when the child is born. 529 Education Savings Plans are great government-approved college savings plans. The build up is tax free as well as the distribution. Many states have approved investment vehicles to save for college and the contributions are tax deductible, but I think that a Roth IRA is probably an even better idea. The contribution to a Roth is not tax deductible, but the inside build up and distributions are income tax free. This technique is worth far more than contribution deductions and the money can be used as the contributor sees fit.
Many companies like Gerber recommend life insurance for children beginning in infancy. How important is life insurance for children?
I do not think that a death benefit on a child is important. However, a parent may want to have a policy on the child to ensure future insurability. For example, if a history of diabetes runs in the family, you would want to lock in insurability. I recommend a policy of not much more than $25,000. With a base policy of $25,000, you will have options to add another $25,000 at ages 25, 28, 31, 34, 37 and 40. These additions require no evidence of insurability. That means a total of $150,000 can be added to the base policy regardless of the individual’s health status. Also, if the insured chooses not to exercise an option at any one of the three year intervals, the option will be available again three years later. This is a terrific method for building an insurance program.
TV commercials tout home equity loans as an effective way to consolidate credit card debt. Is that sound advice?
If you can be disciplined enough NOT to return to credit card use, home equity is a good way to consolidate debt. The only debt that has an income tax deduction is a home mortgage. Credit cards are after-tax debt. If you transfer credit card debt at 18% interest to a lower interest home equity loan, a lot of money can be saved. There is always danger in debt. The real danger lies in transferring money to a home equity loan, and then over extending yourself by returning to credit card use. Homeowners put themselves at risk of losing their home in a bankruptcy.
Sam Rawls has been a respected professional in the insurance field in Columbus since 1961. He holds qualifications as a Chartered Life Underwriter, a Registered Health Underwriter, and a CLTC, a specialist in Long Term Care Insurance. Currently he and his partner, Seth Knight, III, operate Knight- Rawls, Inc., an employee benefits planning company.
