“An UGMA or UTMA account is a custodial account, where the account is owned by a minor. As noted in the FAFSA instructions, custodial accounts must be reported as investments on the FAFSA and are reported as assets of the account owner, not the custodian. The titling of an UTMA account
established by a grandparent for a grandchild will be “[Grandparent’s
Name] as custodian for [Grandchild’s Name] under the [Grandchild’s
State of Residence] Uniform Transfer to Minors Act” or something
similar.”
I’d call a college’s FA officers and ask what they expect you to do. Personally, I don’t think “not knowing” would fly.
But as thumper points out, this is roughly a $500 difference.
If it were my daughter, I’d have her liquidate the account and put it all towards first year college costs (or a laptop, dorm supplies… whatever).
If it is kept in the UGTM account, it reduces aid by 20% of the balance each year. Yes, this is an asset of the student. The grandparents are custodians, and they may not “take the money back”. They can use it to pay for certain things on behalf of the beneficiary, but it is no longer “theirs”. There is no tax to close the account, except for capital gains tax on whatever interest and dividends were earned. At $2,500 total principal, this tax should be negligible. We’re talking $2,500 here, well under the $15k maximum annual gift limit from one person to another. So no tax on the principal.
I am assuming the parents were planning to pay that $2,500, before they knew the account existed. If we assume they have the money banked - and now they can hold on to that a little longer - it would only reduce aid by 5.65% of the asset value/balance for each year the student is in college. That is significantly better than the 20% per year rate the students assets are assessed at.
Have a talk with the grandparents. Maybe they intended the money to help with college all along. If they wanted the granddaughter to spend it as she pleased, it still is better to use it to pay for college now. Then when the beneficiary is in her spring semester of sophomore year of college, her parents, if they so choose, can gift $2,500 back to her, tax free and free of FA implications (unless she goes to grad school).
@mommdc the OP wrote this…so simplified needs and auto $0 EFC don’t apply.
To @JulyAugust321 any financial aid forms can be selected for verification. Your financial aid forms could be selected for verification without changing them. Verification should not be a worry as long as what you reported on your forms was honest, accurate…and you respond to the verification request immediately when received.
To @JulyAugust321 any financial aid forms can be selected for verification. Your financial aid forms could be selected for verification without changing them. Verification should not be a worry as long as what you reported on your forms was honest, accurate…and you respond to the verification request immediately when received.
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Thanks. Yes, everything was accurate and honest. I think I was just triggered by the idea of loads of additional paperwork. (I don’t know much about verification.)
Does your daughter have any earned income? If she does, she could contribute money in that amount to a Roth. She can withdraw the contributions (but not the interest) without penalty at any time, and retirement accounts are not counted as assets n the FAFSA. (If she withdraws it while she is in school, she has to report it.
I don’t know what the rules are with respect to this year for your daughter.
Verification can be for any reason…and some are actually randomly selected. Sometimes it’s a random selection per FAFSA, and sometimes the school(s).
For example, our son was selected for verification by his college all four years he was an undergrad. God knows why as our EFC exceeded the cost of attendance the first three years. And yes, we did have to mail the college a bunch of additional documents…which we did…all to get the federally funded Direct Loan.
Thanks, everyone. We are likely just going to update her FAFSA (and CSS, I’m assuming.) We’d rather report it and let the chips fall where they may than worry that it will cause an issue later (however unlikely that may be.)
You will need to contact each college regarding updating the Profile. This can’t be done online. The schools will tell you what, if anything, they want you to do…and how to do it.
It might be easier to hold off on contacting schools until you whittle things down to a couple finalists. There’s no point in getting a bunch of FA offices moving when you really only liked the idea of New England in the fall vs an actual slushy Boston winter (or whatever.)