<p>Son is a HS junior so this is the year that FAFSA looks at for Finaid. Husband is on the verge of losing his well-paying job due to economy. We have about $60K in UGTMA and $20K in a 529. Question: we have one car payment on car we are letting son use. Since money is going to become tight, is it wise to use some of the UGTMA money (about 19K) to eliminate this debt? Obviously it would helpful to eliminate the debt but would it ultimately help son possibly get more aid if we have less in the UGTMA funds? (Note: selling car is not an option for various reasons). Son is average student looking to go to large school in New England to either play for or cheer for ice hockey. He's an only child. Any thoughts from experience out there? Thanks.</p>
<p>I'm not an expert but will offer information.</p>
<p>Yes, the custodian can spend UGTMA funds on non-education expenses that benefit the child.</p>
<p>If you believe you will be eligible for need-based financial aid, it is better to have fewer liquid assets than more liquid assets, pre-FAFSA it is better to use liquid assets to pay off debts or other looming large expenditures than to retain the liquid assets, and it is better to have liquid assets in the parent's names than in the child's names (i.e., UGTMA accounts).</p>
<p>Momrules, I had some questions regarding UGTMA, 529, etc. I was getting conflicting advice. So I called the FA office at one of S's target schools. I ended up speaking with one of the FA officers who took a 1/2 hour not only to explain her school's policies but also how they differ from other schools' policies, for good and for bad. It was very helpful and I have confidence in what I heard from the horse's mouth. You might want to consider it for yourself.</p>
<p>Among the things I learned is that schools handle such things differently. For some schools, money in your son's name - ie UGTMA - is considered his money, and 20% of the total goes against your ability to pay. On the other hand, if you have the money saved in your own account for him, only 6% of the total goes against your ability to pay. Other schools treat that differently. The point is that you can't really get blanket answers and be certain it will apply to the school in which your S is interested.</p>
<p>I guess I am trying to solve two problems: reducing personal debt due to job loss (car) and having less liquid assets to report on FAFSA. If I pay off the car, I have 20K left in a 529 and 45K left in UGMTA. Son will likely end up in New England, out of state or private tuition...Did not anticipate job loss and being unable to keep putting $ into the 529. Thanks for your insights/experiences. No magic answer...</p>
<p>I'm of the opinion in keeping the family's cash flow positive.
Having cash to pay bills is better than no cash and debt. </p>
<p>If the uncertaintly of growth in the UGMA is less than the sureness of debt iinterest, then you must change the numbers to achieve the desired balance.</p>
<p>We got caught in 9/11 a big declining security market, and big college expenses. We luckily had some UGMA in EE bonds and cash to pay the interest on student loans until the UGMA securities recovered in 2005-06.</p>
<p>If the son is a high school junior, then you don't necessarily need to do anything about his assets this year. What's important for FAFSA is where the assets are on the day you fill out the form, which in your son's case would be January 2010, right? So you have plenty of time to decide how you're going to balance the UGMA vs 529 funds. Of course if you're sitting on huge capital gains in the UGMA then this is definitely the year to realize those gains, but even then you don't have to pull any money out of the UGMA.</p>
<p>You don't give your entire financial picture (nor would you need to on this forum), but it seems to me that with the prospect of a job loss looming, transferring relatively liquid assets (UGMA) into an illiquid and depreciating asset (a car) would be a risky move. I agree with LongPrime - look at your cash flow first before you tie up savings.</p>
<p>You can take any capital gains in the UGMA this year, then see what your financial situation looks like next year. At that point you might be wise to transfer the UGMA funds into a 529. Or if money is really tight and you can't sell the car, you can use UGMA funds to make the car payment.</p>
<p>As laxtaxi mentioned above, the FAFSA formula applies 20% of the UGMA funds each year for college expenses. Parent assets and anything in a 529 are applied at the rate of 5.6%, so a 529 is the advantageous place to park such funds, assuming this makes sense in the bigger picture of your finances.</p>
<p>^^My understanding, though, is that you cannot move UGMA money into a 529 account in order to transfer it to an asset of the parents'. The transferred UGMA money remains the childs' property and therefore still assessed at 20% value for family contribution calculations.</p>
<p>laxtaxi you're correct, you can't move money from a child's UGMA into a parent's 529. However, you can move money from a child's UGMA into a child-owned 529. I've done this myself for my two sons.</p>
<p>I had posted this on another thread:</p>
<p>Note the distinction between a child-owned 529 and a parent- (or grandparent-) owned 529. In the case where you're moving money from an account that the child already owns (a UTMA), it must be transfered to a like account, which for this example must be a 529 owned by the child (also known as a custodial 529). This is in contrast to the more common way of owning 529s: most are owned by the parent for the benefit of the child, and as such the funds can be easily transferred from one child to another.</p>
<p>A dependent student's self-owned 529 account is reported as a parental asset and is assessed at the parent rate of 5.6% for FAFSA.</p>
<p>Again, thanks for all of the feedback.</p>
<p>vballmom, that is information I had heard too - until I called a school of interest to my son and learned that it would still be considered my son's asset and assessed at 20%.</p>
<p>Parent- and student-owned 529 accounts are reported on PROFILE. Colleges that use PROFILE have their own formulas on how they assess 529 assets, and it's certainly possible that a college might assess these assets at a higher rate than by FAFSA. </p>
<p>Did your son's school require PROFILE, laxtaxi?</p>
<p>(I just plugged a number into the financial aid calculator/Institutional Method on finaid.org and see that the student-owned 529 is assessed at 20% for IM and ignored for FAFSA)</p>
<p>I think most schools using PROFILE would treat a student-owned 529 as a student asset and assess it at 20%. And it seems to me that's the right outcome.</p>
<p>kill the debt.</p>
<p>Thanks...just wondering how you came to this suggestion?</p>
<p>Because a $19k car loan is not counted anywhere on FAFSA, a $19000 balance in a bank account is included in assets available for college funding. Many sources recommend paying off consumer debts before filing FAFSA</p>
<p>
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Son is a HS junior so this is the year that FAFSA looks at for Finaid. Husband is on the verge of losing his well-paying job due to economy
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</p>
<p>A couple of things strike me. First: this isn't the year that FAFSA looks at for Finaid; it's your assets in January 2010 that will be considered. Second, with the possibility of a job loss, unless you've got cash equal to 6 months of your expenses on hand in other savings, it strikes me as really risky to tie up your son's cash in a car. If you're working and have a high-paying job that can support the family indefinitely even with the loss of your husband's job, then of course the equation changes. Regardless, there's no rush to do anything until your financial situation becomes clearer with your husband's job.</p>
<p>vball is right, you file the FAFSA January of the senior year regarding income in the prior tax year and assets as of that moment, so if your son just began grade 11, you have a bit over a year to decide whether to pay off that car</p>
<p>Look at your rates of return. If the rate-of-return of your investment (UGMA) is higher than your loan costs (car) then keep the investment. If the loan costs (interest) is more than your return-on-investment (interest, dividends, cap gains less losses) then kill the loan. </p>
<p>We are living in uncertain times,</p>
<p>Hello. I'm new to the site & was hoping to get some advise and I wasn't sure where to go. I'm divorced & my ex husband opened a UTMA account for our son during our marriage & withdrew the money from our joint checking account. We verbally agreed to open the account with the intention of using it for his college tuition & expenses for the future. My ex husband put his name down as the custodian. Unfortunately, I did not make mention of this account in our final divorce agreement. It does state that we're to split the cost in half for our son's college expenses. I want to make sure that this money we originally placed in the account is still there and that it stays there until he goes to college. My ex refuses to provide me with statements so I'm concerned he may have withdrawn some of the money. We live in NY and the balance is less than $10k. Has anyone ever dealt with this issue that could offer some assistance? I feel my next step may be a legal one.</p>
<p>Thank you.</p>
<p>laxtaxi
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vballmom, that is information I had heard too - until I called a school of interest to my son and learned that it would still be considered my son's asset and assessed at 20%.
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</p>
<p>That school is incorrect. Federal law (Title 20) says the child's 529 is to be considered the parent's asset, period. When filling out Profile, you simply include the child's 529 balance in the box listed as parent's investments and report nothing under child's investments. Worked for me.</p>