Family of five with three kids and three 529s (one for each child). Each 529 holds approx. $50k. Our annual household income is approx. $135k and we have approx. $450k of home equity (which we don’t want to touch.)
My oldest D is entering her senior year of HS. She has a 4.0 unweighted GPA, a 1530 SAT score and is in the top 2% of her class. She’s planning on applying to a mix of state schools, UCs, and highly competitive privates.
We are considering transferring the custody of the 529 accounts to a grandparent to increase our eligibility for need-based aid.
If we do this, should we transfer all three 529s or just the younger siblings? Would not having any college savings hurt my daughter’s chances of being admitted to private schools? She’s planning on applying to some need-blind schools but it sounds like the majority of privates take financial status into consideration.
These two statements seem to indicate contradictory goals…
On one hand it looks like you’re trying to move money around to qualify for more aid. On the other hand you’re concerned it’ll affect admission chances at need aware schools.
When our oldest started college that was probably our income (family of 7), with about $30,000 in each 529, $400,000 in equity in our home. Our youngest are rising juniors, we get some subsidizes loans, that’s it, even with 3 in college.
Some plans will allow a special rollover to transfer ownership of a 529; others will not. It may not make a difference in aid offered to your child if you transfer, because it’s highly likely that while FAFSA will no longer consider grandparent 529 contributions, Profile still may. Plus, only a few schools actually truly meet need.
The $150,000 in the 529s will cost you about $7500 a year in aid at a meets need school (assuming your daughter is accepted to a meets need school - she definitely has the stats). So definitely not insignificant but I’d wonder about transferring to the grandparents - it feels icky to me and I’m not even sure it’s possible. The home equity might be more problematic but will depend on the school. Check each school and how they handle home equity (it’s not counted at all on FAFSA so not an issue for schools that don’t use the CSS). Some schools don’t count it at all and some count the full amount (so $450k costs you another $22,500 in aid each year plus the $7500). Other schools cap the amount of equity they count - usually based on income (for example they may cap at 2x income). All you can do is run the NPCs at the schools and see if they are within budget. My guess is you’ll qualify for some aid at meets need schools, but if they count home equity they’ll be out of reach financially considering you don’t want to tap into your home equity. But you’ll have to calculate them one by one to know for sure.
Are you considering withdrawing the money, taking a penalty, and just giving it to the grandparents? If not, wouldn’t a custodial 529 held by the grandparents still have your child’s name on it?
It seems like your approach could make matters worse. If you aren’t think of a custodial 529, I would think that either the grandparent owned 529 or the grandparent gift (whichever way you were considering) would be treated as untaxed income and lower you child’s financial aid.
CSS profile schools are going to ask for 529s anyway, I think.
Edited to add: Wouldn’t any changes be too late to matter for her freshman year anyway, since her financial aid is based on this year? Or will it consider a point in time, like December 31, for those accounts?
I think part of the issue is a change this year in the FAFSA.
Previously, I think custodial 529s in the child’s name were supposed to be listed on the FAFSA. But now I think only the ones that are held by the parents, not ones held by grandparents, have to be reported. (Maybe it has always been this way. But my husband did ask me a couple weeks ago about this same maneuver after he had read some article about the FAFSA change.)
Like someone else said, I would assume that the CSS profile would still require them to be reported. And most schools that meet full need are going to require more than the FAFSA.
I understand what the OP is asking though. Currently, they have $150,000 in 529 accounts, but only $50,000 of that is designated for their C24. However, my understanding is the FAFSA will require them to report all $150,000 of it, because it does not take into account who the 529 is designated for. If they transfer the $100,000 designated for the younger children to the grandparents, it will not have to be listed on the FAFSA and it’s possible it will not have to be listed on the Profile either. At least this year, the profile only asks “are there any other funds from other sources such as grandparents that are designated for this student?” That $100,000 is not designated for this student, it’s designated for other students, and so it might not have to be listed.
I do not know enough about how 529s work with regard to taxes to know if they would then have to pay a gift tax when they withdraw the money from the “grandparent“ 529 for their younger kids. Personally, it seems a little bit sketchy to me, but then a lot of financial maneuvers that people recommend and are perfectly mainstream seems sketchy to me.
Some schools are “need blind” — they don’t consider finances when making admissions decisions. Some schools are “need aware” — they might consider finances. (I have heard, for example, Tufts and BU are both need aware, but it is possible that is apocryphal, I haven’t verified it myself.)
It is unlikely you can optimize for all the schools your child is applying to, because schools have different policies. Like others have said, you can run the NPCs for the schools under both financial scenarios and see if the maneuvering makes much difference for the expect COA. And if it does, check if any of the schools of top interest are need aware. If they are, you have to decide if the possible financial benefit of looking like you have less savings outweighs the possible disadvantage of needing more aid.
I’m not sure this is correct. IIRC, 529 accounts OWNED by the grandparents have not been listed on the FAFSA, but contributions from 529 accounts toward colleges costs for accounts owned by the grands was reported. The change is…the contributions won’t be counted by the grands anymore. Is this correct @kelsmom
If you are GIVING the 529 money to the grandparents, please remember, it becomes theirs…and they can do whatever they want with that money once it’s not yours anymore.
I do hope @BelknapPoint sees and responds to this thread.
Contributions from the grandparents will become income to either the student or the parents. Income is penalized much more heavily in financial aid formulas than assets are. I doubt it’s worth it.
OK, I looked it up. Currently, this will not be the case with the simplified FAFSA, or at least that is what college financial advisors are writing online.
Starting in 2024-25, students no longer have to report gifts on the FAFSA. In the past, any amount that was given to the student was reported as untaxed income … so the amount of grandparent 529 payments were untaxed income for that year. This rule goes away in 24-25, so theoretically, putting all the kids’ 529 accounts in the grandparents’ name results in the asset not being reported (as it would be if owned by the parents) and the payment from the 529 not being reported as untaxed income (as it was previously). So doing a special rollover from parent to grandparent could possibly be beneficial, if it’s allowed by the plan. Again, a Profile school may very well request that information & count it. And … the owner can change the beneficiary any time they want, so just keep that in mind.
Congratulations on saving what you did for each child and on your child’s performance. But we all have to make choices in life. We used a decent portion of our equity on private school and our business’s and paid for college of two with current income. Both OOS also. We had some 529 but like never enough but some how with merit ended up with some surplus. Still puzzled at that.
But with three that would of been challenging even with them getting some merits etc.
I would do a few things. Make an extensive excel type spreadsheet for all colleges. Yes, mostly instate will be less expensive. Run the numbers. Don’t count on merit /financial aid you haven’t gotten yet and have an honest talk with the kids about college expenses and what you can contribute. Apply all over and see what the end results are. With her numbers there are schools that can be mostly free but probably not ones you might consider. That is a choice made. Going out of state is also a choice made.
Then call or email (can make a separate email account) and just be open and honest and ask the questions. Trust me, they don’t follow you or log your call. They actually want your kids and really want to help. See what advice they give. Some will give more then others.
Just don’t put your kids in peril by lying and I know that is not your intent. We all like a good tax loop hole once in a while. Things have definitely changed with multiple kids in college. Your accountant might be able to help with tax /saving strategies also.
I would not attempt to do this, but that’s just me.
Your daughter is a strong student. She can apply to instate schools, schools where she has a high chance of merit (safety), and schools that look affordable based on the NPC (ie meets full need).
She can apply to reach schools that give merit (ie Vanderbilt), but I would make it clear that if merit does not happen then these schools are off the table.
If your D is graduating in '24, consider that many institutions have their own processes and look-back periods in place, and the ways that financial aid are awarded are constantly in flux.
Just leave the 529s where they are and don’t try to game the system. Apply to a variety of schools at a variety of price points and admissions criteria and she will likely get into at least one that you can afford.
