I’m not sure this scheme will leave you in a better position. Parental savings are advantaged in most college aid formulas. You’ll be expected to contribute up to 5.6% of those saving toward the cost of college.
Receiving funds from a grandparent would be counted as income as it becomes reportable and visible, probably in about two years. Seems to me increased income would deliver a much bigger hit.
Ethically speaking, you have savings. You received tax advantages from those savings because you were saving for education. Those savings leave you in a much better position than many other families to contribute to college. Colleges will treat those savings favorably compared to other assets and income.
Also, financial aid budgets can be finite. They’re not quite zero sum, but a dollar you take might have gone to someone else in less favorable circumstances
I’ve worked at highly selective colleges. Parents like OP aren’t operating a vacuum. Families who hide $150k of assets to get additional need based aid are taking money that could have gone to another family that doesn’t have an extra $150k stashed somewhere. It’s one thing if grandparents have money and are willing to fund their grandchildren’s education. That’s not what this is.
I don’t believe hiding money is ethical. Changing the name on the account doesn’t mean it’s not the parents’ money. If it did, the grandparents could spend it and OP wouldn’t care. It might work against them anyway. Their household income is too high for a Pell grant, so any additional money would come from the colleges. If it appears they can’t pay, their plan may negatively impact the chances of admission at need aware schools. Need blind schools won’t care but getting admitted won’t matter if the family can’t afford it, and I don’t think many of them meet need.
I think OP would be better off if they ran the Net Price Calculators and used the information to encourage their daughter to apply to some financial safeties, matches, and reaches. If she applies wisely she should have some nice choices in the spring, but OP should give her a budget cap so she’s not surprised that an acceptance doesn’t automatically mean she can attend.
Actually, that’s exactly what this is. The 529s were originally started by and funded by a grandparent. We transferred them to our custody a few years ago and now we’re considering transferring them back to the grandparent’s custody. Of the 50k in each we contributed under $5k.
We’ve heard crazy stories of people doing all sorts of ethically questionable things to qualify for financial aid. Transferring a 529 back to the grandparent who started and funded it, doesn’t feel unethical to me. And again, I’m primarily looking to shield the siblings’ 529s.
OP, for the vast majority of colleges in America, jumping through hoops doesn’t change a thing. These colleges don’t care what you can or cannot pay- they admit you, your kid either qualifies for merit aid or some sort of state-sponsored program or not- and if there is a gap you can’t fill, oh well.
So keep in mind that the number of colleges that will meet full need-- so that jiggling things around MIGHT pay out-- is extremely small.
If you are prepared to retitle, knowing that it might not make a difference, AND that there’s a possibility that the grandparents might need the money or that a creditor, an accident victim, etc. might go after the money-- go for it. And know that the grandparents might shift the asset mix (even if they don’t take out money) in a way that you would not have done… leaving less for college, and that you’d have zero recourse. You’re thinking growth for the youngest kid- they’re thinking safety. You’re thinking low risk for the eldest kid- they’re thinking “hey, let’s ride the next uptick” which might not come in the timeframe you are looking for.
But you’re trying to shield $150k in savings. That feels unethical to me, like @austinmshauri said.
Essentially, you have $150k more available for your children’s college (whether it’s for the first, second or third kid) that many families don’t have. Yes, everyone would love to pay less for college, but you’re able to pay more than many others.
I don’t have a direct answer to your initial question, but a few thoughts:
Do pay attention to the issue @blossom raises about asset allocation. So many folks get into the intricacies of FA formulas but ignore the fact that a stock-heavy allocation (and bonds, too, for that matter) has downside risk in the short term that far outweighs the 5-6% “loss” that might come from 529 affecting family contribution.
There’s absolutely nothing wrong with honestly optimizing for FA the same way one might optimize for tax efficiency. Obviously, lying is a different matter but I don’t see you contemplating that. There are practical issues with transferring ownership back but not really ethical issues unless your intent is to be the de facto owner of the account.
I’m not sure ability to pay harming admission chances is a big issue for you. At the schools where that would be an issue, seems like you’re unlikely to get enough FA to make those schools affordable to you anyway. See what the NPCs say though.
At the generous schools, if admitted, keep in mind there’s a fairly generous savings allowance so not all of your savings are treated as available. Some of those schools have their own forms and or through the CSS ask if anyone else will contribute to funding college.
If your kids are close in age, this is really only an issue for the first year or two, as having multiple kids in college will boost aid at the generous schools. And/or you’ll drain the 529s more quickly.
Thank you! I asked this same question on another listserv and I can’t tell you the number of people who responded with “just don’t report it.” It was shocking. I’m not trying to do anything that isn’t 100% above board and legal.
I think because what is legal and what is ethical can be and, often times, is different.
None of us on this thread can stop the OP from transferring the 529s. We can express our disagreement of trying to shield 529 assets from being used to determine how much money OP will be charged for college for his children. 529 assets are there to be used to pay for college, and we are talking about being assessed 5.6% of those assets per year.
I think many of those on this thread have been pointing out (over and over) that this attempt to (at most) shield $8k a year from school financial aid assessments is also possibly futile, because unless the OPs children are accepted to need blind and meets full needs colleges - they may well not qualify for any need based aid at all, so shielding those assets doesn’t necessarily mean they will qualify for more aid - they may very well just see a bigger gap between what the schools thinks they can pay and what the cost of the school is.
Most schools can’t and don’t meet full need for all students, so shielding assets is a waste of time and energy for those schools. You could literally have an EFC of $0 and only qualify for a Pell…good luck financing the rest. This family definitely won’t qualify for Pell, maybe won’t even qualify for subsidizing of any federal loans the kids may take out. So what is the point of an attempt at shielding, especially since schools that do meet full need are going to ask about 529s held by others for the children’s benefit in the CSS forms you’ll need to fill out?
I don’t see an issue with transferring ownership back to the grandparents as long as there is a clear understanding that it means those assets are now theirs, and if unforeseen circumstances arise the money could no longer be available for college. As I’m not a financial aid guru I don’t know how materially 529 money will affect the amount of financial aid you get. Every private school that uses the CSS has their own formula and most schools don’t meet full need anyway. Set a budget and run NPCs and eliminate schools that don’t get you to your budget number. Unless you get significant merit, many OOS schools will be off the table since only a handful offer need based aid to OOS students.
agree with Thorsmom but I will add that “clear understanding that those assets are now theirs” also needs to include other grandchildren and/or their parents, or anyone else in line to inherit or who might need financial assistance in the next few years.
It might be far-fetched to think that the grandparents- who funded the accounts originally- would raid them to pay for a cruise or a fancy car. It is less far-fetched that a different grandchild needs money- medical crisis? and that the grandparents reason “our account, our decision”.
Exactly. Also, I’m not sure how that $$ is treated if both grandparents should pass away before the money is distributed. Does it become part of their estate or does it pass directly to the named beneficiary? Personally, I’d opt for the security of ownership of the assets over a slight bump in aid but that is a personal choice.
It passes to the successor on the account, not the beneficiary. The process of inheriting that 529, however, may depend on the relationship to the owner and/or state-specific inheritance tax laws. Any estate lawyers out there?
It is judgmental though and I think misguided. Again, a reminder, we are discussing grandparent assets. The custodian’s name on the account doesn’t change where the money originated. We are not hiding our savings. I’m simply looking at the pros and cons of taking advantage of a change in the FAFSA policy. If that feels unethical to you, maybe take it up with the Dept. of Education.
We are running the NPCs and working with our daughter to come up with a list that includes a lot of safety schools (both for admission and affordability). That’s a given and I wasn’t asking for advice on that. My original question pertains to the few no-merit schools on her list that we’re still deciding whether it’s even worth applying to.
You’ve reminded me to post my annual reminder-- for those of you who have employer benefits which include life insurance and a 401K (or similar)-- if you have not checked your beneficiary since the day you started at your job and filled out your onboarding paperwork, do it THIS WEEK. It will take ten minutes.
My company had a messy “almost lawsuit except there was no case” when an employee died and the life insurance policy AND the retirement account went to a (much hated) ex-spouse.
My understanding is that many of the meets-full-need schools (as they define need) tend to be quite generous. If she is accepted to one of these, you can always contact them and explain that 2/3 of the 529 money you reported is earmarked for the siblings, and that they are the official beneficiaries on the account. The schools might give some consideration to this.
Point of clarification: I thought we’ve been talking about your assets as you said the grandparents transferred the accounts to you several years ago in an effort to get more favorable financial aid treatment. It doesn’t matter who funded the account - the assets are yours right now. If and when you transfer them to the grandparents - then and only then will they be grandparent assets.
Some to also look at some colleges are not CSS schools but they have their own version of this form or it is in addition to CSS (Kenyon, Princeton and Penn come to mind)
Also another trick is to apply to like schools and have aid matched. Example Harvard does not take home equity other Ivies do. HYP matches HYP aid offers. They say that they looks at the package offered and recalculate their offer but it is essentially matching.