College is expensive, and many parents want to help their kids pay for some or all of those costs. They don't want their kids to start their adult lives burdened with tens of thousands of dollars of debt. In fact, student debt has passed the $1 trillion mark, and it's still rising.

For many parents, the obvious solution is to open an education savings account, which encourages parents to save money over time that can be used to help pay for their child's college tuition later. But at the same time, many financial advisors warn that parents need to take care of themselves first. Too many ignore their own retirement accounts in favor of an education savings plan for the kids.

Is there a happy medium that can give parents and kids what they're looking for? There is...and it's not what you'd expect.

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What Is an Education IRA?

Education IRAs are special savings accounts that work like a regular IRA. Except instead of preparing you for retirement, they help you prepare for your student's college expenses. They're now called "Coverdell accounts" instead of education IRAs.

If you have one, you can make after-tax contributions to the account, with investment options for helping that money grow tax-deferred. Coverdell accounts have their limitations, however. You can only put money in until your child is 18, and contributions are also capped per year at $2,000 per student. While these accounts do let you pull money out throughout your child's school years, there are limitations on what you can buy with the money. These limitations may affect your college student if he or she hopes to spend it on a computer, software, or transportation expenses. These are not allowed, according to the IRS rules governing a Coverdell account.

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Is Permanent Life Insurance a Better Option?

Many parents don't like the limitations of an educational IRA. That's understandable. They may want to contribute more than $2,000 per year, or for their student to be allowed to spend that money on a computer or educational software. Permanent life insurance is a financial vehicle that can give you the flexibility you're looking for—flexibility a Coverdell account just can't offer.

With permanent life insurance, you give your family three things:

  1. Guaranteed death benefit. As long as you keep your policy in force, your family will receive a tax-free death benefit when you pass away.
  2. Cash value. Keep your policy in force, and the cash value that grows over the years is yours to do anything you want. Send the kids to college? Check. Kid not going to college? Help them buy a home, start a business, or supplement your own retirement account instead.
  3. Peace of mind. That's what you get when you have both of the things listed above. No matter what happens, your family is protected.

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