Divorce 529 Plan and FAFSA

Paying for College
1

<p>My daughter is a junior in High School, her mother and I are divorced. I would like to maximize her financial aid without being dishonest.</p>

<p>Her mom has not remarried and makes a rather modest income. I have remarried and my wifes income would probably put us over the need test for financial aid. My daughter lives with her mom over half the time.</p>

<p>Therefore, I think it would be wisest to have her Mom do the FAFSA. I plan to cotribute or even to outright pay for all of the unmet need.</p>

<p>My question is the 529 plan for my daughter, which is to Benifit her but is in my name. Does that 529 need to be mentioned on her FAFSA? Can I use that money from the 529 to contribute to her education without reducing any financial aid?</p>

2

<p>If she lives with her mother more than 51% of the time, then it is perfectly legitimate for her mother to fill out the FAFSA. The 529 that you own would not be reflected on the FAFSA.</p>

<p>Remember, however, that most private schools require the Profile, and the Non-Custodial Parent forms, where your and your wife's income and your 529 will also be reported, and would have an effect on financial aid. Some private schools may require their own forms, either in addition or instead of the Profile, but few will not ask for the non-custodial parent's financials.</p>

<p>It's primarily state schools that use only the FAFSA.</p>

3

<p>In July of 2006 a federal policy was enacted that required that all 529 plans be reported on the FAFSA form. It does not matter who paid for the plan mom, dad, grandma etc.. if it is for the benefit of the student then it must be reported - much like a Trust Fund. Providers of 529 plans provide documents to FAFSA regarding those enrolled. </p>

<p>Take the cash and stuff it under a mattress, that's the best way to hide funds.</p>

4

<p>AHH But you are to report cash and checks also. If you are going to stuff assets under a matress, make them baseball cards.</p>

<p>Perhaps it is in the interp of how you interpret the FAFSA Question....regarding what is a parents asset. It mentions commodities, 529 plans UTMA / UGMA. I assume this is a UTMA which is in your name ie it is for the benefit of you the parent.... People report that a UTMA in the minors name wrapped around a 529 plan is invisible. </p>

<p>Best way may be to treat these assets as a UTMA / 529 in a younger siblings name?</p>

<p>My head hurt for 3 months trying to figure it all out. In the end I probably cost myself some money on the EFC. So what, I'd like to say its worth it, but really, for a couple thousand bucks, it really isn't. I can make that money back by donating plasma or some such method.</p>

<p>Relative to the statement that providers of 529 plans provide documents to FAFSA regarding those enrolled....I am not so sure about that. I know that these plans provide the info to the IRS via a 1099 (as well as to the owner of the account), but I would not be so sure of a direct connection between the 529 providing this info to the Dept of Ed. I would guess that there is not a lot of collaboration between Revenue and Education on a Fed level. Cripes, the CIA and FBI cant even get there acts together.</p>

5

<p>According to the FAFSA website:

[quote]
College Savings Plans - are qualified educational benefit plans such as "529" college savings plans, other prepaid tuition plans offered by a State, and Coverdell education savings accounts. The value of these plans is to be reported as an asset of either the student applicant or the parent, as follows: </p>

<p>If you are reporting parental information and your parents own a qualified educational benefit plan, or education savings accounts – including "529" college savings plans and Coverdell savings accounts - report the current balance of the plan as a parent asset (Q88). The amount to be reported for a state prepaid tuition plan is the "refund value" of the plan. </p>

<p>If you are reporting parental information and you own a qualified educational benefit plan – do not report the value of those plans. </p>

<p>If you are not reporting parental information and you own (or if married, your spouse owns) any of these qualified educational benefit plans – report the current balance of the plan as a student/spouse asset (Q44). The amount to be reported for a state prepaid tuition plan is the "refund value" of the plan.

[/quote]
</p>

<p>(emphasis in original)</p>

<p>However, on the FAFSA, one reports only the assets of the custodial parent. (From the FAFSA worksheet: "If your parents are divorced or separated, answer the questions about the parent you lived with more during the past 12 months.") I do not read this change as indicating that all 529s, regardless of who owns them, are reportable. In fact, 529s owned by someone other than the parent (e.g., a grandparent) are not reportable. The July 2006 change simply made the 529 an asset of the parent, not of the student.</p>

<p>daviban, if you have different information, could you please post its source?</p>

6

<p>
[quote]

Parent Asset Information
• Investments include real estate (do not include the family home), trust funds, UGMA and UTMA accounts, money market funds, mutual funds, certificates of deposit,
stocks, stock options, bonds, other securities, Coverdell savings accounts, 529 college savings plans, the refund value of 529 state prepaid tuition plans, installment and
land sale contracts (including mortgages held), commodities, etc. For more information about reporting educational savings plans call 1-800-4-FED-AID. Investment value
means the current balance or market value of these investments as of today. Investment debt means only those debts that are related to the investments.
• Do not include the value of life insurance, retirement plans (pension funds, annuities, noneducation IRAs, Keogh plans, etc.) or cash, savings, and checking accounts
already reported in Q43 and Q87.
• Business and/or investment farm value includes the market value of land, buildings, machinery, equipment, inventory, etc. Business and/or investment farm debt means
only those debts for which the business or investment farm was used as collateral

[/quote]
</p>

<p>Here's my interp. A UTMA for which you are a custodian is NOT a parent asset. it is an asset of the minor to whom it was gifted. </p>

<p>
[quote]

Student Asset and Veterans’ Benefit Information (See page 5 for instructions on reporting assets.)
As of today, what is your (and your spouse’s) total current balance of cash,
savings and checking accounts? (Q43)
As of today, what is the net worth of your (and your spouse’s) investments,
including real estate (not your home)? (Q44)
Net worth means current value minus debt.

[/quote]
</p>

<p>Now, (as the student here) while you are clearly the owner of a UTMA it has been gifted to you. You as a minor truly have no control over it correct? How could it be treated as an asset for the student then?? Many more smart people have figured this out and structured their finances and investments accordingly. Good Luck</p>

7

<p>Chedva and I cross posted. I think her explanation is even better. As a noncustodial parent, I dont think ANY of your info comes into play.</p>

8

<p>All I can tell you is I talked to the FAFSA people and the financial aid offices at 3 universities and was told it needed to be reported. I did not ask for anything in writing. Maybe it is a question of honesty. If you end up having to do the IDOC there is a non-custodial parent form that needs to be completed. I struggled with reporting a Trust Fund, since there was no distribution it may not have been able to have been traced but I have alot of inherent guily. Maybe I am just stupid, I did as I was told by FAFSA and the Financial Aid Office. When you cash in the 529 I assume a 1099 is created and IDOC asks for all 1099's, both custodial and non-cutodial.</p>

9

<p>IDOC deals with the CSS Profile, and has nothing to do with FAFSA. The info you got was correct for Profile (and see my initial post, talking about the non-custodial information on CSS Profile). FAFSA doesn't ask for 1099s, W-2s or any other supporting documentation unless you're selected for verification.</p>

10

<p>Just read a morningstar report on assets and FAFSA. It basically said that two families with identical income/assets can end up with completely differnt aide packages as the FAFSA and IDOC are ambiguous and can be interpreted in so many ways. It did mention 529 plans and those are considered the asset of the parent since the beneficiary can be changed at anytime (unlike a Trust Fund). So, it is the asset of the parent, therefore, if you can get away without completing the non-custodial parent form you might be okay. Four of the five colleges d applied to required the non-custodial forms be completed. Maybe you need to search for those schools who do not require the non-custodial parent form.</p>

11

<p>As I understand it 529s are considered the asset of the holder, not the beneficiary. If grandparents own the 529 then this is not reported as a parental or student asset on the FAFSFA. Some schools that use the Profile ask if the student is the "beneficiary" of a 529 and in that situation you would have to report the 529 that was held by grandparents.</p>

12

<p>True the 529 is the asset of the holder, I was addressing the question of the non-custodial parent.</p>