Aunt of Orphaned Nephew

Paying for College
21

There’s no doubt that there’s an inequity in the 529 laws. A student with living parents can transfer funds into a 529 account and, even though the student is both owner and beneficiary of the account, it is treated as a parent asset, and not a student asset, for purposes of calculating eligibility for aid. A student with no parents cannot do that, so the funds, even if they’re in a 529 account, will be treated as a student asset.

I agree that it makes sense to speak with the financial aid offices at each school that he’s applied to, and ask if they’d be willing to apply to apply “professional judgment” in his case to deviate from the standard formula.

Unfortunately, if he’s already a senior in high school, this may mean rethinking the schools he needs to apply to, which could mean having to take a year off if the colleges now on his list aren’t going to be affordable. And if he’s already in college, then you really don’t have much flexibility at all.

Bottom line is that, fair or not, unless we’re all missing something, there’s really no legal way for him to shield these funds from view for purposes of financial aid. He needs to find schools that are willing to go above and beyond to help him . . . and I’ve no doubt those schools are out there, but they may be few and far between.

22

The aunt could be the owner of the 529 and the nephew the beneficiary to avoid counting it as the nephew’s asset. But then withdrawals are counted as untaxed income.

(FAFSA)

23

The OP hasn’t answered the question: is it enough to pay for 4 years of college (at, say, $25,000 per year)?

24

If the money were in a retirement vehicle such as an inherited/beneficiary IRA or an annuity, it would be sheltered from the FAFSA. It probably is too late for it to be characterized as a beneficiary IRA (the money would have had to have been in an IRA for the mother), but it may not be too late for it to be moved to an annuity.

However, annuities are very tricky investment options, and the nephew would need to get expert advice (and at least one expert second opinion) before tying up his money that way.

25

Yes, if the aunt owned the money . . . but that’s where this thread started, isn’t it? Wouldn’t the nephew first have to transfer the money to his aunt in order for her to open a 529 account (in her own name) naming him as beneficiary? And if he’s reached the age of 18, isn’t it too late to do that now?