For legitimate reasons, can you move a chunk of your net assets to another country to lower the number on paper, a couple of years before your kid entering the college? (probably who knows)

Thank you very much for your nice summary. It's extremely important to know. It looks like that we'd better maximize retirement accounts and don't hurry paying off mortgages if college is not too far away.

What do you think about the tactic of moving money to a variable life insurance plan to "hide" it from EFC calculations? After 10 years, you can borrow against the death benefit @ 0% interest and no taxes, so you can still get to the money to actually pay tuition. In fact, it seems *too* good, which is why I'm skeptical.

VUL is too costly for most people as an investment vehicle, because it charges much higher cost of insurance (COI) in addition to a bunch of administration charges, plus front loads for their mutual funds. The worst thing is the COI requires life time commitment (up to 95 yrs old), and the charge becomes rediculously high when you get old and don't need insurance (no dependent). I am afraid the insurer just wish to die sooner to get any benefit from the life long payment. It only makes sense for those whose income is too high (>250K/year) to qualify for (and max out) other retirement vehicles. By the way, I think you borrow against your cash value instead of "death benefit", and the interest is not 0%, otherwise you don't earn any interest from your cash value during the loan time.

In this sense, Roth IRA seems the best place you should always max out every year.

You're right, you do borrow against your cash value, not your benefit. However, the cost of borrowing money is 0% after 10 years and it doesn't need to be paid back.

BTW, I'm curious if you could quantify "much higher COI" for me and "front loads for their mutual funds." My VUL policy has hundreds of funds to choose from, not all of them managed funds.

Thanks for the discussion. I am not very familiar with VUL -- as you can read from pfblog, I am currently sticking to term life insurance.

Based on what I know about VUL, borrowing can be a great feature in your tax deferral strategy, but you also need to play it safe as if you borrow too much, or your investment declines significantly, you will need to inject additional money to keep the policy from lapsing. Lapsing may trigger severe tax consequences.

As you are locked in for at least 10 years in VUL, can I assume you have other vehicles like 401(k) and Roth IRA as other pillars of your retirement/saving plan?

I am maxing my 401(k)s (mine and my wife's), my Roth IRAs and my ESPP (Employee Stock Purchase Plan). I've had the VUL for about 5 years and plan to use it as an investment target for my ESPP money after 1 year (to avoid short-term capital gains taxes). Then, when the VUL hits 0% interest, I plan on moving all non-qualified investments into it, effectively "hiding" them from the EFC calculation, but still providing me tax-free liquidity. Thoughts?

Oh, you are saving a lot Chris! As long as you max out 401(k)s and Roth IRAs you should have enough liquidity to prevent your policy from lapsing after borrowing and thus have your base covered. There should be no red flag to my understanding.

On tapping the 0% interest liquidity, I guess you still need some more analysis on the real cost of the borrowing. Even the nominal interest is 0% per se, it should still affect your cash value or growth potential in your policy somehow, right? In that sense, your borrowing will still come at a hidden expense to be quantified.

Again, I am not familiar with VUL at my age, but take a look at my writing about 401(k) loans. Even you are paying interest in 401(k) loans to your own 401(k) account, there is still hidden cost as you increase your future tax liability.

http://www.pfblog.com/archives/295_the_real_cost_of_401k_loan.shtml

Chris,
Different VULs have different packages of parameters. But in general, it's a life long commitment and you have pay cost of insurance monthly plus many charges in order to keep the policy active. how much a 70, 80 or 90 years old to pay monthly COI? depending on the benefit and age and the table of each company, it'll be thousands. Different policy have different details but it's known to be a very expensive shelter for money to grow with tax benefit.
Mutual funds in VUL do not have explicit loads, but the VUL company usually charges 0-8% money before you invest into them.