529 Plans and FAFSA Assets

If a parent has a state 529 plan, Coverdell or UGTMA held for the benefit of a younger (under age 18) sibling how is that treated for FAFSA purposes? CSS specifically asks in a separate category (I think). What about Fafsa?

It is a parental asset if the parent owas the 529 account.

Thank you.

Then what do they mean when some schools on the NPC have a separate category “What is the current value of assets your parents hold in your siblings’ names?” Mentions custodial and investment accounts in the instructions.

Other schools of the same caliber do not ask that.

‘Your parents HOLD in your siblings’ names’ are accounts parents own. If the account is held by the sibling, it is not a parental asset.

Schools can ask whatever they like. Some are okay with not asking about 529 plans for siblings, other schools want to know because they know that money is actually available for this student. A parent could put all the money into the 529 for the youngest child and just move it every year for the older kids. Schools know that. Some care, some don’t.

So does the FAFSA ask the question that way? If I have 30k in my personal investments and I hold 10k in some type of 529 or custodial account for my 12 year old, for purposes of FAFSA and schools that do NOT ask the question above, do I have 30k in assets or 40k? Thank you

If you are the holder, you need to report it on fafsa as a parent asset. If your 12 year old is the owner/holder, my understanding is that you do not have to report it on fafsa. I don’t know about CSS or individual schools.

A 529 account that is actually owned by the student’s sibling (i.e. not owned by the parent, even though the parent may be acting as custodian for the minor sibling) is not reported on the student’s FAFSA or Profile. These accounts are typically funded with UGMA/UTMA money, and the beneficiary (the sibling) cannot be changed as long as the sibling is a minor and unable to legally control the account.

A 529 account for the student’s sibling that is actually owned by the parent with the sibling named as the beneficiary is reported as a parent asset on the student’s FAFSA and Profile, because the parent controls the account and can change the beneficiary at any time.

A 529 account that is actually owned by the student is reported on FAFSA as a parent asset (if the student is a dependent for FAFSA purposes, otherwise it’s reported as a student asset), and is reported on Profile as a student asset in question SA-110A. Profile colleges can assign the account as a student or parent asset as they wish, consistent with their institutional FA policies.

The purpose of the question about parents holding assets in the name of siblings is to find parent assets that really belong to the parent but have been retitled in the name of a minor in an effort to reduce income taxes. With the beefed-up kiddie tax rules this is not as common as it used to be. The question is not asking about assets that legitimately belong to minor siblings, such as inheritances, gifts and UGMA/UTMA funds that may be under parental control until the minor reaches the age of majority.

Thank you.

Still confused. I get what the difference is between real sibling assets held by the parents, for example minor sibling won a contest or appeared in a commercial or Great Aunt Edna was so happy little Eddie was named after her that she left him something in her will.

What I do not understand is “parents holding assets in the name of siblings is to find parent assets that really belong to the parent but have been retitled in the name of a minor in an effort to reduce income taxes.”

While I am familiar with the over and under 14 rules on the kiddie tax and even in the old days when you could give your kid $2000 per year in their name under a UGMA arrangement. I just do not see how that is different from a Coverdell or 529 plan for the minor sibling?

So under FAFSA, if I take parent money and give $2000 to a UGMA account on behalf of the sibling that is no longer a FAFSA asset? However, if I take the same $2000 and put it in a Coverdell it is???

Also what happens if I have two over 18 in college, have 529/coverdell for each, can I exclude the other ones from each kid’s calculation?

Is there a way to retitle a 529 or Coverdell so I do not have to include them for FAFSA only schools for the siblings? Since my kids will never be independent (probably not even after they graduate!) is there a downside to having the 529 in their name since it is considered a parent asset regardless for that kid’s FAFSA. Would it be considered a student asset on some Profiles?

Parent taxable investments are taxed at parents’ tax rate. It is/was not uncommon for parents to take their investment money and invest it under a child’s name in order to take advantage of the child’s lower tax rate. This was not a gift to the child, as the intent of the parents was always to reclaim the money when the investment was liquidated. The FA question you are asking about is designed to identify these funds and have them properly reported as a parent asset. As I mentioned, this tax avoidance strategy is less effective with the more robust kiddie tax, and it is, in my opinion, questionable both legally and ethically.

Anyone can give any child any amount of money under a UGMA arrangement, and always could. There have been and are gift tax reporting requirements, but that’s a different concern. Giving a child money under a UGMA arrangement is an irrevocable gift. Once the gift is complete, the money belongs to the child and cannot be reclaimed by the gift giver or repurposed for someone else’s use. A contribution to a 529 account where the child beneficiary is not also the account owner is treated in the eyes of the law as a gift to the child, but it is not irrevocable with respect to the current beneficiary because the beneficiary can be changed by the account owner. That’s the difference.

Correct; the money now belongs to the sibling and the account custodian can only use the money for the sibling’s benefit.

I’m not as familiar with Coverdell ESAs, but if the money is put in a parent-owned 529 with the sibling named as the beneficiary, it must be reported as a parent asset on the student’s FAFSA, because the parent has control of the account and can change the beneficiary from the sibling to the student. You see the difference? The money can potentially be used for the student’s benefit; the money in a sibling’s UGMA account cannot be used for the student’s benefit.

For 529 accounts that are owned by a parent, no. (Again, I am not as familiar with Coverdell ESAs.)

At least for 529 accounts, yes: if the plan allows it, change the owner to the beneficiary, and it will not need to be reported on the sibling’s FAFSA or Profile.

Yes, if you are the parent owner of a 529 account and you change ownership to the student beneficiary, you give up control of the money. The beneficiary cannot be changed while a custodian manages the account until the owner/beneficiary reaches the age of majority, and once the age of majority is reached, the owner/beneficiary can empty the account and use it for anything (paying tax and a 10% penalty on any earnings not used for QEE).

Yes; if the student is independent for FAFSA purposes, a student-owned 529 account is reported on FAFSA as a student asset (since no parental financial information is reported at all in this case).

Thank you.

Just as an FYI Coverdell https://www.irs.gov/publications/p970/ch07.html#en_US_2015_publink1000178457
You are correct, the beneficiary can be changed so that would make it my asset.

“At least for 529 accounts, yes: if the plan allows it, change the owner to the beneficiary, and it will not need to be reported on the sibling’s FAFSA or Profile.” So no profile either?

With regard to the last, I am not worried about an independent student or her running off with the money. I am more worried about the Sibling 529 Plan being considered an asset. So would consider retitling.

I realize for the student HER OWN 529 would be an asset, the question is whether in her name or mine. For a NON independent 19 year old, if she owns the 529 Plan, will it be her asset for FAFSA or CSS? It seems the answer is it is still mine for FAFSA but what about CSS or does it depend on the school.

Correct. A sibling-owned asset, including a sibling-owned 529 account, does not get reported on Profile. It is not an asset that is potentially available for the student’s college expenses.

Some plans do not allow a change of ownership. You will need to look on the plan’s website or contact the plan administrator.

A 529 account owned by a non-independent student is always reported on FAFSA as a parent asset. It’s reported on Profile in the student asset section (question SA-110A), but it’s up to each college to assign the account as a student or parent asset based on the school’s institutional FA policies. Some Profile schools, typically those that more closely follow the federal methodology, will count a student-owned 529 account as a parent asset.

Any place I can research which Profile schools treat the SA-110A as student v parent? Thank you

Sounds like moving the siblings to a student owned 529 makes sense if possible but I do not want to recapture that down the road when the sibling starts school. I will be limiting my kids geographically so have a decent idea of where they will apply in the future.

Try a Google search. If that doesn’t work, you will need to contact individual FA offices and ask.

Recapture? What does that mean?

I was not using recapture in the accounting sense. I meant I am saving 5.65% per year in assets that are not included if I move the siblings to a self owned plan. However, I will lose that the first year they get aid and “THEIR” 529 plan is tagged at >20%. Will have to do the math to see if it is worth it.

profile schools tend to look at 529 plans as $$ that is 100% available for college expenses, unlike say home equity .
So their FA calculations of your EFC will assume that 529 $ is part of what you can afford to spend…

Don’t go to the schools that don’t treat a student owned plan as a parental asset if that’s your financial plan. You have to choose how you want to hold the money and what you think will work the best for your family.

If 10 schools all would treat the student owned 529 as a parental asset, but the 11th school on your list treats iy like a child’s asset, will you take the chance that your child will go to one of the 10, or base your financial planning on the possibility that the child will go to that one school that does it differently? Do you take the savings now on child 1 without knowing if child 2 will go to the school that treats the funds as a child’s asset.

Life’s full of chances and choices.

I would probably go with what works for most of the type of schools the kid would apply to. I already have a strong sense of what type of student each of my kids is. They range from could get into Top 20 (not saying would, just that the raw material is there and it would be a good fit) to hoping gets into our state flagship and the bottom of the meet full need privates.) However there does not seem to be a good way to determine how they treat 529 plans in the abstract. Very frustrating.

In any case I am seeing huge differences in general, outside of this topic, even within the same category the more I play with the NPCs. The differences between Harvard and Brown are striking for example. I would pay 50% more at Brown!

"The differences between Harvard and Brown are striking for example. I would pay 50% more at Brown! "

well, yeah…Look at the difference in the size of those 2 colleges endowments! Harvards is over 10X’s the size of Brown’s.
the $$ has to come from somewhere…

The old-timer’s here all can tell you about “type of student” and why you shouldn’t pin too much on your predictive abilities.

First- because kids change. The kid who was gung-ho for Cal Tech or RPI and wanted engineering as a HS freshman ends up wanting to work for an NGO on monetary policy by the time senior year rolls around (inspiring debate advisor? An econ elective?)

Second, because “type of student and type of school” is a very amorphous concept which is not grounded in reality EXCEPT for the extreme cases- the kid who is talented enough to get into Julliard for example. Otherwise, you should be thinking (and encouraging your kids to think) that all types of kids thrive at a wide variety of school. That’s the best way to head off the “dream school, my life is over if I don’t get into Dartmouth” syndrome.

And third- because even the best laid plans… I’ve got a family member who ended up turning down mega prestigious U (which they could comfortably afford at full freight) to stay local and commute to a not so great but not horrendous local college. Parent diagnosed with cancer (doing great now) and the kid wanted to be able to chauffeur younger siblings, throw in the random load of laundry. Of course I hope that you are healthy and strong and your investments deliver an 8% return every year and nothing bad ever happens… but reality- stuff happens.

So do yourself a favor and stop the “I have a strong sense of what type of student each of my kids is”. I had a late bloomer who ended up at MIT- who knew? we figured he’d be happy at a college where he didn’t have to work hard and where he could hide in the back of a lecture hall. Other kids look destined for the moon and then can’t keep up junior year and have to dial back the intensity; the parents just pray their mental health stays solid and who cares about college.

But I think it does pay to do general planning. Generally, schools (and FAFSA) consider 529 plans to be a parental asset even if owned by the student for that student. Generally, retirement accounts are not counted as an asset but the contributions made during that year are included as income. If any one school wants to include an IRA or 401k, it can do so.

Often a lot of gymnastics for little additional aid.