Seeking Pam is correct… a grandparent using a grandparent-owned 529 to either pay the school directly, or give 529 funds to the student beneficiary who then pays the school, counts as bills paid for or untaxed income to the student, and will not make a difference for any siblings.
Ah! But a parent owned 529 would be different…right?
So confusing!
Correct. A parent has the ability to change the 529 beneficiary to any child, so the asset is reported on the FAFSA /Profile of every child of that parent. Of course, a grandparent can change the beneficiary of a grandparent-owned 529 as well, but the grandparent is not considered to be responsible to pay for the education costs of any grandchild.
It is confusing. We were discussing both grandparent outright gifts, to either a student/grandchild or a parent/child, and grandparent owned 529s, with payments either made directly to the school or to the student grandchild, and the implications of any of these scenarios on both FAFSA and Profile reporting. Throw in prior year and the new prior-prior year reporting requirements, the difference between reporting income and reporting assets, and it’s not long before your head is spinning.
SeekingPam wrote: “The assets or income of children over 18 are not counted for siblings unless they are parent assets or income which a grandparent 529 would not be.”
Does this need to be qualified with “children over 18”? I believe assets or income of children 18 or younger are also not counted for siblings. Correct?
That is correct. Income and assets that truly belong to a sibling are never reported. It doesn’t matter how old the sibling is. A sibling is not responsible for funding a brother’s or sister’s education.
Actually, I may need to amend my remark slightly. There is a question on the profile (PA-105A) that asks: “Enter the total value of your parents’ assets held in the names of your (the student’s) brothers and sisters who are under age 19 and not college students.” Note that this question is not asking about 529 plan money (that is entered as regular parents assets), but rather accounts like UGMAs. Here are the directions on that question:
"If an asset is held by your parents in the name of a sibling, it is reported in PA-105
If an asset is held by your parents in your parents’ names, even if it’s for your sibling (e.g. a 529 plan), it is reported in PA-120.
If an asset is owned by your sibling, it is not reported on your PROFILE application."
Assets that are truly owned by siblings, including UGMA/UTMA accounts, are not reported on FAFSA or Profile. This is indicated (at least for Profile) by the last sentence quoted above.
PA-105 is for reporting parent assets that have been retitled in the names of the student’s brothers or sisters, something that is known to be done as a tax avoidance strategy, although with the most recent changes to the kiddie tax this has become less advantageous (and in my opinion has always been legally and ethically questionable).
@privateID exactly why I said 18 (did not realize it was 19) but regardless. This is only for Profile schools.
Outside of 529 plans and coverdells, no one is absolutely sure what is considered minor sibling assets. Sure if 12 year old sibling was a performer and earned money, sibling. If Aunt Bess left money specifically to sibling, sibling.
UGMA funded with birthday gifts for sibling by (not from parents)? Sibling I would imagine.
If mom and dad did a UGMA for minor sibling 10 years ago or last week and funded it with their cash? I am not sure whose asset that is considered.
If grandpa gives 12 year old sibling a big check and it gets deposited in UGMA account originally funded by parents???
If grandpa gives 12 year old sibling a big check, parents open a UGMA for the check and deposit for sibling??? Probably sibling. What about if in the same reference year the parents spend that money in the UGMA account to send sibling to Europe or private school or for ski lessons for sibling? Was that money sibling’s which does not get reported or was that untaxed income to the parents?
SeekingPam- UGMA means Uniform Gift to MINORS Act. The account is owned by the MINOR. No ifs ands or buts. It is controlled by an adult custodian until the minor owner reaches the age of majority. Under the control of a custodian, the money may only be used for the benefit of the minor account owner. This should not be a difficult concept to understand. Once a gift is made to a minor and deposited in the account, it can not be taken back or retitled to someone else.
Talk about confusing. Here’s the rest of the instructions for that question:
"Include funds in custodial accounts, Uniform Gifts to Minors accounts, or other savings and investment accounts held by your parents in the names of your brothers and sisters, who are under age 19 and not enrolled in college.
Funds held in Section 529 college savings or prepaid tuition plans are parent assets and should be reported as parent owned investments in PA-120.
You should only include assets your parents own in your siblings’ names, not assets owned by your siblings."
If an asset is re-titled in the kids name, wouldn’t that make it a completed gift to the child and owned by the child? I don’t understand what “assets your parents own in your siblings’ names” means. I would think any UGMA account fits that bill. This doesn’t really affect me, but got curious by SeekingPam’s comments.
Absolutely @privateID, Not sure how a minor would own anything other than through a trust, UGMA, 529 or otherwise held by a parent, guardian or trustee. These instructions never made sense to me. I think there probably is a danger of overreporting here.
In most states a minor cannot own property in their own name but require a trustee or custodian either under UGMA which is the easiest to set up or a more complicated trust arrangement.
I would image a 529 that is owned by the minor (set up that way) with the parent only as custodian would not be included. Not sure what else a minor could own except for assets held in an adult’s or trust company’s name for his or her benefit.
So back to my question, if the minor sibling inherited or worked for the money in the UGMA account held by the parent for his benefit vs got it as birthday money from grandpa vs was money parents transferred over, whether to take advantage of the (now mostly defunct) kiddie tax benefits or to save for this minor sibling’s college, does it have to be included in the Profile?!
This would almost imply that the account had to be held by an outside custodian or trustee or a self owned 529 to not be considered an asset under the Profile. This seems an impossible result.
Bank account. Money in a piggy bank. Savings bonds.
This is known as a custodial or UGMA/UTMA 529 account, and it is not reported on a sibling’s FAFSA or Profile.
If it’s money the parents “transferred over” to shelter it from being taxed at parent rates and it’s the intent of the parents that it not be a gift to the child (in other words, the parents still consider it their money), the answer is YES. Otherwise, the answer is NO.
Uh, no. Lots of parents are custodians of their minor child’s UGMA/UTMA account, and the accounts are properly not reported on a sibling’s FAFSA or Profile. The money belongs to the child (sibling). Not the student. Not the parent custodian.
Maybe this will help. Here are two questions and answers from the Profile 2015-2016 FAQs and Glossary, put out by The College Board.
*Each of my children has his or her own savings account. However, the State of New York considers these accounts belong to me as my children are still under the age of 18. Should I enter the amounts of these saving accounts in PA-105?
No. If the assets of your other children actually belong to them, do not report them in PA-105, even though the children are minors. PA-105 asks you to report any of your assets that are being held in the names of your children.
My son is attending college this year. Why do I have to enter the value of the assets held in the name of my son’s sisters and brothers? Will I be expected to use their money for my son’s education?
PA-105 asks for parents’ assets held in the name of the student’s brothers and sisters. Parents often move some of their assets to their children’s names - custodial accounts, Uniform Gifts to Minors accounts, etc. - for tax purposes, since the income from the assets would be taxed at the child’s rate rather than the parent’s rate. These assets will be considered parent assets for the purpose of determining eligibility for institutional student aid.*
Yes I saw the same quotes online on the College Board’s site.
In my state, bank accounts are either titled as a UGMA or similar or it is a joint account for a teenager and an adult, If the adult is the parent it would be reportable anyway,
Money under the mattress is usually not reported either!
The criteria seem to be very subjective, what were the parents thinking at the time they made the transfer?! Where they avoiding tax or just trying to save for college or a bicycle for the kid? No way to really prove intent when the money has never been touched. Still murky. Sometimes parents change their tactics. For example, they may save for a youngest child who is going to college alone, while not save for a much older pair of siblings who will be going to college together and may qualify for aid.
This does seem to clarify that any money the child receives from outside sources, birthday money, inheritances or earned income belongs to the minor sibling even if the custodian is the parent since the intent of the outside donor was to give a gift to the child.
Did you read the first of the two questions in post #52? Why is it not clear to you that a child’s money in a bank account is not reported on FAFSA or Profile for that child’s sibling?
Subjective maybe to an outside observer, but a parent knows what belongs to the child and what belongs to the parent, and shouldn’t have any trouble correctly reporting.
OK, although I’m not sure why this was a subject of confusion to begin with. A sibling’s earned income belongs to the sibling; it is not available for that child’s brother or sister to use for college and is not considered by FAFSA or Profile. Likewise, gifts to a sibling belong to the sibling; they are not available for that child’s brother or sister to use for college and are not considered by FAFSA or Profile.
The original question is ‘how does the school know?’ It’s all self reported. Money under the mattress, the coin collection, the savings bonds, the $2000 from Uncle Harry. Other than the stuff on your tax form, the schools know when you tell them. I’ve not been asked, and haven’t heard of one school asking for the bank statements of siblings, or their taxes. The first year I’d forgotten about a credit union savings account I had. $50. I didn’t stress over the error.
Do people report the the gift cards they have from Christmas? Up to them. The savings bonds that are in parent’s SSN but were for brother? Up to themto interpret the neeD to discore anD whethe they are going to disclose. I really doubt people report every last dime in the jar on the counter, the money in their wallets, the security deposit on their apartment which could be thousands of dollars. Most schools get a pretty good picture of the financial resources with the tax returns, the W2s, and people honestly answering the questions on the fafsa and css.
Exactly. The original question was, “How do colleges know about 529’s (owned) by grandparents?” Heck, the student and his or her parents might not even know about those, at least until the money starts flowing! Just follow the rules and report honestly. If you have questions about the rules, ask (as OP did here).
“PA-105 asks for parents’ assets held in the name of the student’s brothers and sisters. Parents often move some of their assets to their children’s names - custodial accounts, Uniform Gifts to Minors accounts, etc. - for tax purposes, since the income from the assets would be taxed at the child’s rate rather than the parent’s rate. These assets will be considered parent assets for the purpose of determining eligibility for institutional student aid.” (I should learn how to properly quote text)
Money transferred to a child as a UGMA account belong’s to the child. I understand the intent of the parent to minimize taxes, but it is simply not allowed. If you give the money to the child, it is a completed gift, regardless of the intent of the parent. I think (it’s sometimes hard to tell with such confusing forms) this FAQ is saying, if you plan to violate the law and keep the money you’re giving to your child, then you need to report it. I personally cannot make sense of this. However, it does appear from such a FAQ, that a “normal” UGMA should not be reported. It’s items like this that cause such confusion with this form. I bet many people put all the sibling UGMA accounts in this question.
I agree, which is why I said earlier that I find the practice both legally and ethically questionable.
I believe that you just did make sense of it.
Yes I would think so too. Especially since all simple bank accounts for minors under 16 in my state are titled as UGMAs. Most parents would think it automatically applies to them especially if they were the original source of the money.