<p>Life insurance proceeds were left to me (rising senior) in a guardianship account that I will have access to as soon as I turn 18. How exactly is this treated for financial aid purposes? Will all of this money be expected to be available for tuition? Is there anything that can be done once I turn 18 that can help my financial aid prospects?</p>
<p>Ask the guardian to transfer the funds to a 529 (college savings) account for you. The account can still be set up as a guardianship account, with someone else as custodian for you, and then you can transfer it to your own name when you turn 18. It should be possible to set up the 529 account immediately, though - no reason to wait until you’re 18.</p>
<p>Any funds held in a 529 account on the day you file your financial aid forms (FAFSA, etc.) will be treated as parent assets rather than student assets and, as such, will be assessed at a much lower rate than student assets. Parent rate = 5.6%. Student rate = 20% . . . meaning that’s how much of the money you’d be expected to contribute to your college expenses for the coming year. </p>
<p>The 529 account gets assessed at the parent rate regardless of whether it’s owned by you or your parents. Since the inherited funds are yours, the 529 account would have to be in your name. </p>
<p>Don’t know when you turn 18 . . . but the transfer to the 529 account needs to happen before you start filing your financial aid applications. So, if your birthday’s not until later, start talking to the guardian now.</p>
<p>Please be aware that money in a 529 is intended to be used for educational purposes. If you take the money out for another reason, you will have to pay certain penalty charges. Don’t put more into a 529 than you can reasonably expect to need for your education.</p>
<p>You may want to discuss the possibility of converting some of this settlement into a retirement annuity. Some annuities permit withdrawals immediately after establishment, and allow you to vary the amount withdrawn. As a retirement vehicle, the funds would be invisible to the FAFSA. However, they may be reportable on the CSS Profile or another type of Financial Aid form.</p>
<p>Do run your numbers with and without this settlement throughout the net price calculators at several different college/university’s websites. Think about how you will pay for college if you don’t have access to this money. You maybe best offin the long run if you use it for your education rather than trying to hide it from the financial aid process.</p>
<p>Wishing you all the best.</p>
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<p>This matters only if that penalty exceeds the 20% that would be assessed to pay for college.</p>