Leave a legacy
Helping your kids through college while your retirement income keeps growing.
Do not interrupt the compounding
About ten years ago I worked out that I earned too much to receive financial aid, and that unless my kids found scholarships I was paying full price five times over. So I stopped asking how to get free money and started asking how wealthy families pay for large expenses.
Compound growth does its work over time. Most of us are taught to save and then spend: save in a 529, spend it on tuition; save in a 401(k), spend it in retirement. Each time you spend, the compounding stops and in most cases you pay tax on the way out.
Wealthy families more often do the opposite: they keep the asset and borrow against it. Loans are not taxable income, and the investment carries on growing behind them.
How the Retirement Scholarship Strategy works
It is the strategy behind the book Lance wrote in 2018, and the whole argument is in three moves.
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Put tax savings to work
Each year's saving from one strategy funds the next investment, whether that is equipment, energy storage or another property. The ball keeps rolling instead of stopping.
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Borrow rather than sell
Selling stops the compounding and usually creates a tax bill. Borrowing against the asset does neither, so the money keeps growing while the loan does the spending.
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Let the income outlast the tuition
Once the college bills stop, the cash flow does not. That is the part that turns a college plan into a retirement plan.
The problem with the standard accounts
401(k)s, IRAs, Roth IRAs and 529s are all designed to be spent. You cannot use any of them as collateral to borrow at a lower rate and leave the balance compounding. You can take a loan from a 401(k), but that is your own money, which interrupts the compounding anyway.
There is a second problem. Most people believe taxes will be higher in future, and then voluntarily defer their tax bill into that future. Deferring is not the same as saving.
Would this work alongside what you already have?
Book a free strategy callCash value life insurance
The version we use most often is indexed universal life. Most people buy life insurance for the death benefit; used this way the goal is the opposite, to maximize the cash value and minimize the insurance, because the fees sit mostly with the insurance component.
An indexed policy participates in part of the market's upside without the downside exposure. The part that matters here is that the insurer will lend against your cash value, so the balance keeps compounding while the loan pays tuition.
The more common version of the same idea is borrowing against a brokerage account. It is worth understanding the limits: you can usually borrow only a portion of the balance, and a sharp fall can trigger a margin call that forces a sale, creating the tax bill and the interruption you were trying to avoid.
Before you move money into a policy
Check the aid position first
- Life insurance is treated differently from a 529 or a brokerage account in the aid formula, which is why this connects back to strategy two.
- Whether repositioning helps depends entirely on the schools your student applies to.
- Check that before moving anything, not after.
Know what the product costs
- Insurance products carry costs, surrender periods and policy charges.
- An illustration is not a guarantee.
- Review any policy with your own licensed advisor, and treat borrowing against investments as an advanced approach that does not suit everyone.
Why this is called leaving a legacy
My goal as a parent is to leave a legacy in three ways. By helping my kids get the education they want. By teaching them the financial principles they will not be taught at college. And by building something that is still there after I am gone.
Real estate keeps paying after you die, and the beneficiaries inherit at current value. Handled properly, what passes on is not only the money but the understanding of how it was done.
From a family who did this
I never thought I could keep my college savings and allow it to keep earning interest.
These are the experiences of individual Legetty clients, in their own words. Individual results depend entirely on your own income, tax position and circumstances, and nothing here is a guarantee, a projection or a typical result. Figures mentioned are what those clients say happened to them, not what this site offers or predicts.
College gets paid for out of what your retirement earns, rather than out of the retirement itself. And even with a senior in high school, it is never too late to start.
Lance Morgan, founder
All four strategies
Each one helps on its own. Combined, the savings from one pay for the next.
- Tax scholarshipsTurn part of the annual tax bill into assets you own.
- Student and financial positioningLower what college costs by positioning the student and the assets.
- Scholarship housesProperty that produces deductions and cash flow, run for you.
- Leave a legacyPay for college without interrupting your own compounding.
Book a free strategy call
Tell us about your family, your income, and when the first tuition bill lands. We will walk through which of the four strategies apply to you, and what putting them in place would involve.