<p>We're considering moving our 529 savings into a Modified Endowment Contract. I saw a discussion of this but it was from 2007 and the links are gone. Anyone have any thoughts on the pros and cons of this strategy to move assets under the radar? </p>
<p>If you plan to put money into a MEC, then withdraw for college, there are some issues with that. While technically you may be able to avoid showing it as a liquid asset on the FAFSA (which I am not sure about), you would have these problems:</p>
<ul>
<li><p>Under MEC rules, any gain will need to be withdrawn first and realized as income, this could seriously impact (hurt) financial aid eligibility down the road after the first year.</p></li>
<li><p>If the owner is under 59.5 a distributions would be subject to the same 10% penalty tax that hits all retirement savings plans unless the owners uses a 72(v) distribution, which could result in more distributions than desired.</p></li>
</ul>
<p>Doesn’t sound worth it to me. I don’t know all the other ramifications of a MEC, just know that these are drawbacks for college savings. You really should study the financial aid calculations before doing this, too. Colleges weight income much more heavily than savings. So “moving assets under the radar” isn’t a great strategy to maximize financial aid.</p>
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Would “moving our 529 savings” considers as non-qualified distributions of 529 savings? Depending on the earnings, you may have to pay a lot of taxes.</p>