FAFSA question re: UGMAs, prepaid tuition plan

Paying for College
1

<p>Late in December DS had to use the smaller (under $4000) of his two UGMA accounts to replace his computer which died suddenly, but this was a likely expense anyway in preparation for starting college next fall '13. </p>

<p>Question #1: is this: How should this "dividends redeemed" amount shown the FAFSA I need to complete ASAP? I now know that in our state the age of transfer is 18, so this will appear on DS' financial section of FAFSA. But it's not wages, I don't think it's interest income, it's no longer an investment, so does that make it dividend income - and if so, do I just enter the total amount of the check?</p>

<p>We have never owned, sold or otherwise dealt with financial transactions like this. I set this up years ago with what I could manage, and just let it grow. </p>

<p>I am trying to avoid calling the accountant who has always done our tax returns. Last time I did, he put me on hold to go find out the answers, and billed me $170.</p>

<p>Question #2: I now see that the other UGMA ($12K) probably should be redeemed as well, and we could use it for payments on the car DS plans to take to college. As I understand it, the date we complete the FAFSA is a "snapshot" so if the UGMA has been liquidated and spent, we can accurately say we don't have it... but it will show up on next year's FAFSA as income on which he'll have paid taxes.</p>

<p>Is this a worthwhile strategy regarding FA, or is it more important to get the FAFSA submitted ASAP?</p>

<p>Question #3: I just discovered that the advice I received on how to show the prepaid tuition plan (parent is shown as the purchaser, so I know it goes on the parent financial portion) seems to be incorrect. I was told to enter what was paid ($11,800 which puts me in the "Yes" response regarding my total assets below the threshold) but now I see that it is the refund value I should show ($34,000). Correct?</p>

<p>As you can probably tell, I tried as a single parent to plan ahead, but now I've stumbled my way past the end of the basis year without enough attention to this. I have the FAFSA completed except for this outstanding UGMA money. </p>

<p>Thanks in advance for any help or advice.</p>

2

<p>Better tax experts than I out there, but I think I know some of your answers. Taxes on UGMA would be paid only on gains in account, not the total amount. Was it invested? You should get a form stating profits, but you could estimate it by subtraction if you know initial amounts.<br>
If you liquidate the $12000 and spend it, the asset value (FAFSA impact of about $2400) disappears, and income would exist based on the profit alone. Depending on your income and assets, the $12000 might be more useful for tuition compared to it’s FAFSA EFC impact.
You might try different scenarios in FAFSA4caster to see how much difference it makes.
My prepaid tuition (Washington GET) specifically gives its value for FAFSA purposes, you might check with administer of plan, but I believe it is present value as an asset, valued at parents rate for FAFSA purposes.
Good luck.</p>

3

<p>Thank you! I did just complete the FAFSA4caster and I now see that if I liquidate the $12k UGMA now before filing the FAFSA, it would lower the EFC from $14K to $11.5K. </p>

<p>Both the $12k UGMA and the $34k prepaid tuition (Texas Tomorrow Fund) will be used to pay for college, so I’m just trying to walk that fine line between being honest and accurate, but also smart about maximizing financial aid qualifications. </p>

<p>FAFSA uses the term “refund value” regarding 529 prepaid tuition plans: </p>

<p>“Investments also include qualified educational benefits or education savings accounts such as Coverdell savings accounts, 529 college savings plans and the refund value of 529 prepaid tuition plans.”</p>

<p>On the Texas Tomorrow Fund account website, it specifies that “refunds” are calculated at the current values as if paid out, minus a $25 fee and $3/month fee (it was a 60-month plan).</p>