A level load annuity may be the best type of annuity for college. These annuities involve a small commission and do not have a front-end load or surrender charge. If the college does not assess the annuity, the client can benefit through increased financial aid eligibility. If the college does assess the annuity, the client can simply take the money out of the annuity without penalty or cost. However, the 10% penalty of IRC Sec. 72(t) on income growth may apply, in addition to income taxes.
The parents reduced their assets by $5,000 by investing in an annuity for college. Since the parents assets were assessed at 5.6% the asset reduction may increase the childs financial aid eligibility by $280 ($5,000 x 5.6%).
If you are in a financial aid asset assessment rate of 5.6%, you could increase your financial aid eligibility up to $56 for every $1,000 of asset reduction by investing in an annuity for college.