<p>We have had to spend my daughter's college fund plus all of our other resources on medical expenses. My husband has a colleague who is considering setting up a college fund for our daughter and soliciting donations from other colleagues. Does anyone have any guidance as to how we would set something like this up? I think the goal would be around $50,000-$75,000. Is there a way to structure this so it doesn't hurt her in getting financial aid? Can we put it a trust account with the family name on it rather than her name? That way it would show up as an asset to our family and impact our EFC, I think, which it seems would be preferable. Would it be income to us in terms of taxes? I think I need to get some professional help, but I'm not sure where to start.</p>
<p>If it’s a fund for her college expenses, it should affect her financial aid. That aid is the last piece to fill in what you absolutely don’t have, and if your DD should have a fund specifically to pay for college, of course, it should be taken into account… </p>
<p>There are many ways to structure these funds, but the simplest way is to set up a 529 cAollege fund, in accordance with your state rules, in your name FBO your daughter. It would still have to be included in the financial aid statements but as your assets, not hers, which is less of a hit. Ask your banker if one can be set up in a trust’‘s name, so it doesn’t get included in your assets. If it were in your parents, the grandparents’ names, it would not be, for instance. But when you start doing that, the full disclosure is going to have show that the money does not have to go exclusively to your daughter, and could be an issue in fundraising drives.</p>
<p>A warning to be very careful in setting up the funds. By trying to get around reporting and using like you are, you can run a foul of other rules. I’m a cancer mom and have seen this happen with families who truly had the best of intentions.If you set up a fund for contributions for certain things, you have to stay strictly for those purposes if the fund is to be tax exempt and give deductions to contributors.But then on the other end, it has to be reported as there and available right up front for those purposes, not kept in the back pocket to make up what you end up needing after exhausting other resources, particularly need based financial aid. There are kids who don’t have such funds, and all things equal, they should get the aid before someone who has money specifically designated for college sitting there,</p>
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<p>To the first question, there is no legal way to do it. Can the colleague keep the money under the mattress. and pay for expenses without declaring it? Yes, but that is illegal, it is gaming the system and if found out, could cause negative consequences.</p>
<p>Putting it in a 529 owned by the parents will have the same effect as putting it in a parent trust and would be the best way to go as it would be clean and legal.</p>
<p>However, you could have the grandparents set up a trust or a 529 and have the colleagues put it into that trust owned by the grandparents, which would also be legal as you do not have to show in FAFSA. In that case in the first year, it will not count but she would have to declare it for the next year as support received, and it will affect the next year’s aid as it is reportable as student income (counted at 20% instead of 5.64%). The impact may be a littler higher and hence this a consequence to a grandparent owned 529. If you have enough funds for first the three years and use this only in the final year, then it will have no effect as she will not need aid after that.</p>
<p>However if I remember right, in the CSS/profile they do ask for details any other fund or source that may be available to the student and if you know of such a fund but do not report it, it will be committing fraud. So the grandparent option may not help in the CSS/profile</p>
<p>So, you have some options that you can work with but nothing that will not affect the college aid package.</p>
<p>I should have been more clear when I said that I didn’t want it to affect her financial aid. I didn’t mean to imply that it shouldn’t affect it at all, I meant that I wondered how we could minimize the impact.</p>
<p>We absolutely want it to be done legally. Our main question is whether or not it is worth the immense effort of a fund raising project if it will totally offset a financial aid package. Our goal is to possibly decrease her debt load and also to subsidize our EFC, since our medical expenses are on-going.</p>
<p>To clarify, what I am reading here, a 529 account is seen as an asset to to the parent (or grandparent) rather than the student? My understanding of what I read here is that it is only income to the student to the extent it is used each year - correct?</p>
<p>My DD is currently attending community college and will be there for another year. She plans to go to medical school, which is part of the reason for the possible attempt at fundraising. She is almost 18. If we proceed with this effort, we would like to use a small amount of this money to help us with her current college expenses. as our medical expenses are on-going.</p>
<p>Any idea what kind of professional could sit down with us and give us specific advice? We want to do this right, if we do it.</p>
<p>Thanks!</p>
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No, 529 account money used each year is not income to the student as long as it is used for qualified education expenses.</p>
<p>^^^
It is my understanding that 529 money held in the parent’s name for the student is not treated as income to the student. However, I believe money in a 529 held by a grandparent (or someone else other than student or parent) is treated as income in the year in which it is paid toward the student’s qualified expenses, thus raising the efc for the following year. </p>
<p>Am I correct or misinformed?</p>
<p>I was not aware that distributions from 529 accounts held in Grandparents names would affect the EFC, but having done some googling it appears that this may be the case. Several articles indicate that this would be treated as untaxed income to the student by FAFSA.</p>
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<p>Yes, you are right. That is the grandparent 529 catch. Hence, if it is not used till the final year on FAFSA only school, it will not make a difference as the student will not apply for the aid the next year. Remember however it is assessed at 20% and not the whole amount.</p>
<p>The best thing to do is talk to the colleges and explain the on-going medical situation and ask for special consideration. So fund raise if you can, but explain the situation to the FA office and they may consider it.</p>
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20% is the rate student assets are assessed at. If the disbursement is income to the student for EFC purposes, wouldn’t any amount in excess of protected income allowances be assessed at 50%?</p>
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Do you really think work colleagues are going to contribute that much for your daughter’s college fund? (Won’t at least some of them be paying for their own children’s education?)</p>
<p>It’s done all of the time. When my son was in treatment for cancer, we were asked by many kind people for a fund to contribute. Others would just do so to the American Cancer Society or the Leukemia Lymphoma Society. Since we preferred the money to be directed tow childhood cancer, though not necessarily leukemia, we did recommend certain chariities. We were also given direct funds for general purposed. I daresay if we had so desired, a college fund could have been started, and we could have maybe gotten a few thousand from it. We did not, but there is no reason not to do so if the demand is there.</p>
<p>The simplest thing to do is to set up a 529 in parents/grandparents name. How it is treated is up in the air from what I have seen, and rules change all the time. When you are talking PROFILE schools, they can be very specific in asking for every dime that comes into the picture. It seems to me, however, that if someone pays for a kids tuition or some trust, that is not specifically limited to that student, it is not required to be reported to FAFSA as income. That is, the last I looked, there was that exemption for grandparents setting up the 529. ALso a 529 in a parent’s name will only be hit as a parental asset since the money in there could go to any student, not just the one, and will be hit at 5% or so.</p>
<p>For the student, yes, it would get the 20% hit and colleges even outright say it is not a smart idea to have assets sitting in the student’s name, for that reason. </p>
<p>As for any other tax free funds, someone needs to talk to a bank about how to qualify as such. And someone will have to be designated trustee and be responsible for the funds. Due to some cases of fraud and abuse, there is more vigilance in these funds than there used to be. THat’s why a pre set fund like a 529 would be far simpler. Also, anyone can just donate to any fund if you are not looking for tax deductions or tax free interest.</p>
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Yes, a few thousand. A goal of $50,000 - $75,000 seems unreachable and unreasonable. How big a company is this?</p>
<p>Ha, ha. It’s nice to think big. A few thousand back then would have added up to about $15K by the time he was 18 even with lousy interest rates and just mediocre investing. Every cent counts.</p>
<p>They may be hanging around a more upscale crowd than we were.</p>
<p>I have a good idea how to proceed. Many thanks for all the valuable advice.</p>
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<p>You may be right swimcatsmom. I thought I had read 20% somewhere but when I again search on google, it says that money from grandparent or relative 529 is considered as “untaxed income”. What I am not able to find is the effect of student untaxed income on FAFSA.</p>
<p>According to the fafsa formula, student income (total of taxed and untaxed with income allowance and allowances for taxes subtracted out) is assessed at 50%. Sorry but I can’t link to the formula because I don’t yet have the hang of this IPad. But if you Google “fafsa formula”, you can find it.</p>
<p>^^^ Thanks. So the grandparent 529 could have a major impact on future aid. A $20,000 distribution in a grandparent 529 will not affect aid for the first year but will increase EFC by $10,000 in the second year. That is why they apparently recommend not to use the money till the final year.</p>