Already filed FAFSA, then discovered UGMA account: How to deal with it?

[redclay]

Earlier this year, our second child, who’ll start college this fall, completed his FAFSA. Just as with his sister, he received an EFC of 0, due to our large family (5 kids) and low income. However, as we were working to complete a CSS profile for him, we discovered an issue I believe we must also address with his FAFSA.

It turns out his grandfather set up a UGMA stock account for him some years back. Since his grandfather is the custodian, we forgot to include it when filling out the FAFSA. It’s not a tremendous amount of money – about 7K (6K stock, 1K money market) – but I believe we need to include it on both FAFSA and CSS.

Or, perhaps, dispose of/transition the UGMA account in some way that will have less negative impact on his ability to qualify for financial aid? From the research I’ve done since discovering the issue yesterday, it seems moving the funds into a parent or grandparent owned 529 might be a good option. If there are other good options, I’m all ears!

For further context, the same grandparents established a 529 (which they own) for our oldest child, and she has taken a few small distributions from it in her nearly three years of college. Happily, other aid and FWS has mostly covered her expenses. With that said, since we ended up having 5 children, it was always our plan to equally share the 529 funds (on an as-needed basis) among them. Right now, our daughter remains the sold beneficiary, but we were planning to change that soon in anticipation of our son’s entrance to college this fall. Prior research led me to believe their grandparents can roll desired amounts from the existing 529 plan into separate 529 plans for each child.

Is that basically correct? If we were to undertake such transfers, it would be desirable to reduce our son’s share by the amount of the UGMA account (which could, presumably, be added to his soon-to-be-established 529 plan) so that each child ended up receiving an equivalent amount of college funding from their grandparents. Anyone see a problem with that? Or with any of what I’ve laid out so far?

Also - importantly - could these moves (which we could make expiditiously) be reflected sufficiently by revising our son’s FAFSA? This would be done well ahead of the June 30 deadline. If a problem, how should we deal with getting him squared away in terms of full reporting of his assets? Seems we can’t really proceed with the CSS until we’ve sorted out the FAFSA.

Basically, I’d love any advice from you folks who know a LOT more about all this stuff than me!

Final context note: remaining children are HS sophomores (twins) and a 7th grader.

[thumper1]

Who is the owner of this account?

@BelknapPoint ? Your thoughts?

[BelknapPoint]

Earlier this year, our second child, who’ll start college this fall, completed his FAFSA. Just as with his sister, he received an EFC of 0, due to our large family (5 kids) and low income. However, as we were working to complete a CSS profile for him, we discovered an issue I believe we must also address with his FAFSA.

It turns out his grandfather set up a UGMA stock account for him some years back. Since his grandfather is the custodian, we forgot to include it when filling out the FAFSA. It’s not a tremendous amount of money – about 7K (6K stock, 1K money market) – but I believe we need to include it on both FAFSA and CSS.

Yes, now that you know about/remember the UGMA account, it needs to be reported on financial aid forms as a student asset.

Or, perhaps, dispose of/transition the UGMA account in some way that will have less negative impact on his ability to qualify for financial aid? From the research I’ve done since discovering the issue yesterday, it seems moving the funds into a parent or grandparent owned 529 might be a good option. If there are other good options, I’m all ears!

You can’t move the funds into a parent or grandparent owned 529 because the funds aren’t owned by a parent or grandparent; they are owned by your child. What you could do to lessen the financial aid hit is to move the funds to a UGMA/custodial 529 account which would be legally owned by the child/student but would be reported on FAFSA as a parent asset, and might be considered a parent asset on CSS/Profile, depending on each Profile school’s own FA policy.

For further context, the same grandparents established a 529 (which they own) for our oldest child, and she has taken a few small distributions from it in her nearly three years of college. Happily, other aid and FWS has mostly covered her expenses. With that said, since we ended up having 5 children, it was always our plan to equally share the 529 funds (on an as-needed basis) among them. Right now, our daughter remains the sold beneficiary, but we were planning to change that soon in anticipation of our son’s entrance to college this fall. Prior research led me to believe their grandparents can roll desired amounts from the existing 529 plan into separate 529 plans for each child.

Is that basically correct?

Yes, within the relevant IRS regulations and the 529 administrator’s program rules.

If we were to undertake such transfers, it would be desirable to reduce our son’s share by the amount of the UGMA account (which could, presumably, be added to his soon-to-be-established 529 plan) so that each child ended up receiving an equivalent amount of college funding from their grandparents. Anyone see a problem with that? Or with any of what I’ve laid out so far?

With different investment vehicles and different timing, it will be next to impossible to provide an equal amount to each child, but you can probably get close.

Also - importantly - could these moves (which we could make expiditiously) be reflected sufficiently by revising our son’s FAFSA? This would be done well ahead of the June 30 deadline. If a problem, how should we deal with getting him squared away in terms of full reporting of his assets? Seems we can’t really proceed with the CSS until we’ve sorted out the FAFSA.

You should make any needed changes to FAFSA and Profile ASAP, but realize that these changes will probably delay accurate need-based FA offers from schools that are providing them. If making a school choice depends in part on FA offers, this might be a problem.

[BelknapPoint]

Or, perhaps, dispose of/transition the UGMA account in some way that will have less negative impact on his ability to qualify for financial aid? From the research I’ve done since discovering the issue yesterday, it seems moving the funds into a parent or grandparent owned 529 might be a good option. If there are other good options, I’m all ears!

I should have included this in my previous post: keep in mind that 529 contributions can only be made in cash, so moving the current UGMA stock assets to a 529 account will require selling the stocks and potentially realizing a capital gain that will be taxable income to the UGMA beneficiary (your son). Depending on the amount of any gain, this might also bring the kiddie tax into play.

[thumper1]

So if he includes the account as is, 20% will be tapped for your family contribution (could be different depending on the college…it could be more). So for $7000, your EFC would increase by $1400.

Did this kid qualify for the simplified needs test or auto $0 EFC? If so, IIRC, assets aren’t counted for FAFSA purposes…so this wouldn’t matter at all.

If he didn’t qualify for auto $0 EFC or simplified needs test…his Pell Grant would be reduced by $1400…but that could come out of the UGMA account to cover that amount, right? Isn’t helping with college costs what the grand parents set this up for?

Profile schools don’t have an auto $0 or simplified needs test…so the asset would “count”. But again I say…isn’t this what the account was set up to do? Help with college costs?

It’s unlikely that your parent out of pocket expenses will increase…the difference will come from the UGMA…a gift.

It’s March 10…and you are just now completing the Profile? Is this kid a transfer student? Hard to believe that a Profile school deadline for that form hasn’t passed.

[redclay]

@thumper1

Who is the owner of this account?

The UGMA account is owned by my son. His grandfather is the custodian.

[redclay]

What you could do to lessen the financial aid hit is to move the funds to a UGMA/custodial 529 account which would be legally owned by the child/student but would be reported on FAFSA as a parent asset, and might be considered a parent asset on CSS/Profile, depending on each Profile school’s own FA policy.

That’s what I was describing, very badly. I misunderstood that it would be parent-owned because I’d read it would be reported as a parent assent (and wrongly assumed it could just as easily be transferred to grandparents). Thank you for the clarification!

With different investment vehicles and different timing, it will be next to impossible to provide an equal amount to each child, but you can probably get close.

Close is perfectly fine. Some may ultimately need more than others in any case.

You should make any needed changes to FAFSA and Profile ASAP, but realize that these changes will probably delay accurate need-based FA offers from schools that are providing them. If making a school choice depends in part on FA offers, this might be a problem.

Yes, I understand speed is of the essence and we will work to get it done immediately. His EFC was an auto-zero, so perhaps just leaving the UGMA account intact could work out okay… and it would speed things up by eliminating the wait for any account transitions before revising the FAFSA (and completing the CSS).

I just want to take the action now that has the best impact over the next four years for him. Our family income will be increasing some (relative to 2018 and 2019) going forward. May not get us out of auto-zero territory given our family size, but it might. I certainly won’t be complaining if it does.

[redclay]

[quote=“BelknapPoint, post:4, topic:2086029”]

I should have included this in my previous post: keep in mind that 529 contributions can only be made in cash, so moving the current UGMA stock assets to a 529 account will require selling the stocks and potentially realizing a capital gain that will be taxable income to the UGMA beneficiary (your son). Depending on the amount of any gain, this might also bring the kiddie tax into play.

I gathered that. Selling the stock would create a capital gain of roughly 3K – somewhat over the kiddie tax trigger. I don’t quite understand the implication of that, to be honest, but will do some research.

[redclay]

@thumper1

So if he includes the account as is, 20% will be tapped for your family contribution (could be different depending on the college…it could be more). So for $7000, your EFC would increase by $1400.

Did this kid qualify for the simplified needs test or auto $0 EFC? If so, IIRC, assets aren’t counted for FAFSA purposes…so this wouldn’t matter at all.

Yes… auto $0 for this coming year and will be for next year as well. When the base year becomes 2020, that might change.

If he didn’t qualify for auto $0 EFC or simplified needs test…his Pell Grant would be reduced by $1400…but that could come out of the UGMA account to cover that amount, right? Isn’t helping with college costs what the grand parents set this up for?

The intent at inception was not that specific… but that’s a good point you’re making. In any event, he did qualify as an auto $0.

Profile schools don’t have an auto $0 or simplified needs test…so the asset would “count”. But again I say…isn’t this what the account was set up to do? Help with college costs?

It’s unlikely that your parent out of pocket expenses will increase…the difference will come from the UGMA…a gift.

His grandfather was hoping it might get him involved/interested in stocks, but he was quite young and it didn’t gel for several reasons (part of why I overlooked the account). Nonetheless, the money can certainly now be used to help defray college costs. I just want to maximize how we use the funds to stretch them as far as we can (obviously including their tax treatment).

It’s March 10…and you are just now completing the Profile? Is this kid a transfer student? Hard to believe that a Profile school deadline for that form hasn’t passed.

Yes. Not a transfer student, new entering Freshman. Not sure about deadlines at various schools, but obviously if that is/becomes an issue, it might pose a problem with specific schools. This process has been very different for my son vs. my daughter, who only applied to public schools. The CSS/Profile wasn’t an issue for her and, frankly, I wasn’t aware of its use at some the private schools my son has applied to. Hopefully, deadlines will not become a problem.

At the end of the day, I’ll be surprised if any of the private schools will be able to match what he’s already secured at a public school. We live in GA and he was accepted early to a state school where he will pay no tuition, thanks to the Zell Miller scholarship. But he’s also applied to some out-of-state private “reach” schools that understandably hold attraction for him and if he’s accepted to one of those and wants to attend, money will be a key factor. Wish we had been more on the ball about the CSS (FAFSA was done last year), but I guess we live and learn and do the best we can.

[cshell2]

If you qualified for Auto Zero the UGMA account doesn’t matter, all assets and other income are ignored.

[thumper1]

If you qualified for auto $0 the UGMA won’t matter as far as the FAFSA EFC is concerned.

BUT this family is completing the Profile too…and there is no auto $0 EFC for the Profile. This asset will count. Whether it significantly impacts institutional need based aid is another question. If it does, it’s not going to be by a lot for schools that meet full need for all.

But I still say, check those Profile deadlines…

[redclay]

@thumper1

But I still say, check those Profile deadlines…

Will do! And now I suspect there is another reason I didn’t go digging for my son’s assets when we filled out the FAFSA. The skip logic omitted certain questions once he qualified for auto $0, and I wonder if a question similar to the one that had me (re)discover the UGMA account while filling out the Profile might have been omitted?

In any case, thank you very much for your help!

[thumper1]

Unfortunately, the Profile does not use the same skip logic as the FAFSA. Because there are not questions to be skipped on the Profile. Those schools want very detailed info about all your financials and all your assets.

You are fortunate that your student has an affordable option in Georgia. The Zell Miller is a great award…as long as you can afford any additional costs. I believe you would get the Pell Grant and $5500 Direct Loan in addition to the Zell Miller…

@jym626 do you know If this is correct?

[mommdc]

How much did your D receive from the grandparent owned 529 each year?

Does she qualify for Auto Zero EFC as well?

If you are looking at CSS profile schools and institutional need based aid, remember that aid will decrease and EFC increase when the older sibling is no longer attending college at the same time.

It looks like you will have two in college for 2020/21, then one for 2021/22 and three for 2022/23 and 2023/24, then two for 2024/25 and three for 2025/26, then one for the remaining three years?

That combined with the changing income can change EFC drastically, which will impact federal aid and institutional aid.

You might want to run some net price calculators with different income and students in college scenarios to see if the schools would be affordable for all four years and whether any aid changes would be able to be made up by the college savings provided by grandparents, student loan and summer earnings.

Auto zero EFC has a pretty low income limit of $26,000 I think (2020/21 EFC formula).

I don’t think it matters for that what the family size is.

[mommdc]

Auto Zero skip logic on FAFSA should skip student income and asset questions, and parent asset questions, unless required for state aid purposes.

Simplified needs I think disregards parent and student assets.

[cptofthehouse]

OP’s student is all set with the instate options. It’s the private schools and PROFILE that are the issues. There’s no telling how that will pan out because it’s late to be completing fin aid forms for them and each school does do things differently in terms of assessing financial aid. I suggest running some Net Price Calculators on the college web sites.

[thumper1]

@mommdc

This parent needs to file a Profile. There is no auto $0 EFC or simplified needs test on the Profile. There is no skip logic. Profile wants all the info.

If this student is applying to colleges that meet full need for all, and $1400 gets added to their family contribution…which can be taken from the UGMA if needed…I doubt need based aid is going to be significantly impacted with an income of under $30,000 a year. But I’m nit a financial aid officer.

The bigger issue is…it’s March 11, and this family didn’t know they needed to do the Profile form.

For others reading this…it is very important that you carefully read the financial aid pages for EACH college and comply with each college’s submission requirements within the deadlines noted.