QUESTION OF THE WEEK - March 19

College Planning Question of the Week
March 19, 2010

In an effort to help parents and students to accomplish their college planning and financing goals, we decided it might be helpful if we offer a "Question of the Week".

Answer to Question of the Week

How do my children's assets, such as 529 plans, custodial accounts, and savings bonds affect the amount of financial aid they can receive?

First of all, 529 Plans are the asset of the grantor, normally the parents, not the beneficiary of the plan.  Other assets of the children such as UGMA or UTMA accounts, savings bonds, savings accounts, etc. are assessed at 20%.  This means that if your child has $10,000 in assets, the federal financial aid formulas will reduce your financial need by $2,000 meaning you will have to pay $2,000 more out of your pocket. This number is recalculated every year.

On the other hand, parent assets are assessed at 5.6% after deduction of your protected assets which is a formula based on the oldest parent's age.  Typically, it is about $50,000.  So, if a parent has $60,000 in assets (incuding 529 plans), the federal financial aid formulas will reduce your financial need by $560 on the extra $10,000, not $2,000!

Note that all 529 plans are pulled into the parent's formula including other 529 plans for siblings who are benficiaries.  Also, the federal formula is calculated from the FAFSA. Some private schools use the institutional formula which may or may not include these assets at different rates.

Conclusion:  Try to title assets in your name, not your children's. However, if you already have UGMA or UTMA accounts for your child, you may cause a tax event if you liquidate.  Contact a financial professional before restructuring your assets.

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