Indexed Universal Life (IUL)

Learn how one family used a CollegePLUS IUL to build a risk-free, tax-advantaged college fund by following TEFRA, DEFRA, and TAMRA rules. (How I Helped a Family Fund College Without Market Risk Using Life Insurance (and Stay TAMRA Compliant))

College Costs Are Exploding—And 529 Plans Aren’t Always the Answer

Did you know the average cost of a four-year college education now exceeds $100,000? Traditional solutions like 529 plans can help—but they come with limitations: investment risk, usage restrictions, and limited flexibility.

That’s why when my client Sarah, a mom of two from Florida, came to me looking for a smarter college savings option, I showed her how a properly structured CollegePLUS Indexed Universal Life (IUL) policy could outperform—and protect her from market volatility and tax burdens. The key? Complying with TEFRA, DEFRA, and TAMRA to ensure tax-advantaged growth and withdrawals.

What TEFRA, DEFRA, and TAMRA Mean for College Savings Plans

TEFRA: Keeps the Policy Balanced

The Tax Equity and Fiscal Responsibility Act (TEFRA) makes sure life insurance policies aren’t overfunded just for tax-free growth. This matters when you’re putting in larger premiums early for faster accumulation.

DEFRA: Controls the Cash Value

The Deficit Reduction Act (DEFRA) introduced rules like the Cash Value Accumulation Test (CVAT) that help protect the tax-deferred growth of the policy’s cash value—critical for college funding timelines.

TAMRA: Avoids the MEC Trap

The Technical and Miscellaneous Revenue Act (TAMRA) enforces the 7-Pay Test to prevent a policy from becoming a Modified Endowment Contract (MEC). Why does that matter? Because MECs lose their tax-free loan benefits—essential when planning to draw down for tuition.

For a quick breakdown of these terms, check out our guide: TEFRA, DEFRA, and TAMRA Explained

Sarah’s Story: A Risk-Free College Plan That Grew Tax-Free

The Challenge: Sarah had already opened a 529 plan—but after watching it lose value in a down market year, she became uncomfortable with the risk. She wanted something that would grow consistently, allow her to pivot uses if needed, and provide more control.

The Solution: We set up a CollegePLUS IUL for each child. The policies were designed to:

• Stay compliant with TEFRA/DEFRA by maintaining a strong death benefit-to-premium ratio.
• Be funded over a 10-year horizon to pass the 7-Pay Test and avoid MEC status.
• Offer growth potential tied to market indexes (with a 0% floor—no market losses).

The Outcome: Sarah’s oldest child now has access to over $60,000 in tax-free loans from her policy—without affecting financial aid eligibility and without any market losses along the way.

Why This Strategy Works Better Than a 529 Plan

Key Benefits of IUL for College Funding

• Tax-deferred growth and tax-free access if structured properly
• No restrictions on how funds are used (not just education)
• No risk of loss during market downturns
• Supplemental death benefit adds family protection

FAQs

Q: What if my child doesn’t go to college—can I still use the money?

A: Absolutely. Unlike a 529, IUL funds can be used for anything: business start-up, down payment, travel—you name it.

Q: Can this impact our ability to get financial aid?

A: Properly structured, life insurance does not count toward FAFSA calculations.

Q: How do I avoid MEC status when funding the policy?

A: Fund the policy evenly over at least 7 years, or work with an agent who understands TAMRA’s 7-Pay Test.

Q: Is there any downside?

A: IULs work best when funded consistently over time. It’s not a “get-rich-quick” plan—it’s a long-term strategy.

College Savings with Flexibility, Protection, and Tax-Free Access

Don’t let college funding be a guessing game. When you structure an IUL properly using the tax law guardrails of TEFRA, DEFRA, and TAMRA, you unlock a multi-purpose financial vehicle that grows with your child and your family’s needs.

Thinking of opening a CollegePLUS IUL? Schedule your strategy call today and let us show you how to protect your child’s future—without taking on market risk.