I don’t want to do anything illegal or fraudulent, but I do want to reduce our assets before filing this years FAFSA. My mom opened a grandparent 529 for my son, and the account rep told us that my son and I were both allowed to contribute to that account, in addition to, or instead of, the one I own. We technically could each contribute up to the $15k annual gift limit (not that we have that much).
Doing that would be a vehicle for my son to save for college, but also take his/our assets out of our names, and as long as we don’t use those funds until January of his sophomore year, the distributions won’t count as income to the student. This seems like a great way to shelter our assets, but especially my son’s, which are counted against us more. I know the income is a different story, but this year’s income won’t come into play until next year’s FAFSA. I know there is some risk, as my mom becomes the owner of the funds, and could do what she pleases with them if she wants. But we’d be willing to take that chance.
I haven’t been able to find one discussion or article about this strategy anywhere on the web. Any opinions or knowledge about it would be greatly appreciated.
You technically could contribute until the 529 plan’s maximum allowable balance is reached, which would probably take a lot more than $15k from each of you.
It’s a valid strategy, as long as you are comfortable with the account’s investment choices and fully recognize the risks associated with putting the money in your mother’s full control (which it sounds like you do).
As noted…if you put money in parent owned accounts, the parents own those accounts. They can spend them any way they choose. They can put restrictions on how the money is actually disbursed. They could decide it should all go to some other college kid in the family. Or they could keep it for themselves.
You are able to do this, but there are risks involved. If something goes sour, your kid might not see a nickel of that money.
The other thing you need to know…you are doing some financial gymnastics that might not net your kid a dime more in need based aid. The very vast majority of colleges do not meet full financial need for all accepted students. If I were betting, I’d say the number of schools doing so has the potential to decrease.
If your kid doesn’t get accepted to a college that meets full need for all, this financial move around could very well be pointless.
ETA…most of the colleges that meet full financial need for all (as the schools calculate this need to be) are quite competitive for admissions.
Also, am I understanding correctly that you plan to contribute to grandma’s 529 AND fully fund your kid’s freshman and sophomore year? Are you really financially needy?
It’s more for my kid to contribute to grandma’s. I’m not worried about admissions. My son is already in college. I just want to keep the amount of aid we’ve gotten previously, and losing 20% of his summer earnings will negate some of that. If he waits and spends it on spring semester, the assets will be counted against him if we file FAFSA before then, and he won’t really be contributing the full value toward college. Financial need is very subjective and determined by a number of factors, like cost of school, upcoming medical expenses, and pandemic-caused situations, etc. And even if I made a little less this year, his assets could negate that too. Hope that explains…
It explains. But really…you (and he) are fortunate to have the money you have, and that he has earned. What better investment than his college costs right now? The FAFSA and school calculations won’t take 100% of his assets. FAFSA only counts 20%. He would still have 80% left.
Of course everyone wants to save a money, but your kid is already IN college…a freshman? This is one year of his earnings being used as part of his financial aid formula. As noted, you can do this…but I’m not sure why you would. What amount is this going to save you for his sophomore year?
He wouldn’t really have 80% left, because the income is going to reduce his original aid dramatically for his junior year. Between the asset hit and the income hit, 70% of his earnings over 6600(?) would be taken out of his grant. I know this is coming, and there’s nothing we can do about the income part. So if we can protect a few thousand from being lost for next year, that’ll help ease the huge hit the following year. And having that money available in that 529 will help. I had a budget for all 4 years, and admittedly did not understand/realize how your money is ‘locked into’ the financial aid process once you accept need-based aid, and how much it can cost you if you or your child’s income or earnings increased. But especially how much aid the student’s earnings would impact things. My biggest mistake was not having him use the earnings directly to pay for the first semester this year. If he pays me back, the assets go under my ownership, and I’d do that because it affects FA less, but I think it would look fraudulent. I just wanted the full value of his money to go to the school.
Would it ever have occurred to you to tell your student NOT to take this summer job, or NOT to take the earnings? Of course not. It’s a blessing that he had a job, and especially this year when so many students didn’t.
I’m sorry, but there are kids really suffering financially this year. Their parents lost jobs. The kids couldn’t find summer jobs. Some have no real way to pay for college. Some won’t be able to return.
Your student is beyond fortunate. He has the money and the resources to continue college.
As noted, you can contribute to grandmas 529 if you choose to do so. You know the risks of that.
I personally wanted my kids to know that their earnings could be used to help support their expenses.
And if I had had him pay directly to the school last month it would have all gone to support his college expenses. I basically wanted his earnings to replace what I already paid. I may just delay filing the FAFSA until he can pay the spring bill. Then suddenly that makes it ok. I do know he’s lucky and we are grateful. And if there’s a way to apply the whole amount to college instead of losing 20%, I don’t think there’s anything wrong with that. I respect your opinionand advice, and thank you for your thoughtful point of view.
That would work. As a returning student, perhaps he doesn’t need to be in a rush to complete the FAFSA…and can pay part of that fall bill, thus reducing assets.
But consider…does he have federal work study? Or SEOG? These both have limited funding per college campus and usually go to lower income students who file early.
He can contribute to your 529, or open his own. A student owned 529 is counted as a parent’s asset (5.6%) and not as a student asset (20%). For the grandparents’ 529, it would not be counted at all this year but he loses all control over the money.
It’s not fraudulent, and no one is watching the accounts to know that anyway. The schools (through the FAFSA) don’t say ‘Hey, what happened to all the money he made this summer?’ He can do anything he wants with his pay from this summer, and giving it to you (to repay what you’ve just paid) is fine. When you pay in Jan, you are paying a new bill. It won’t change the earning hit on the FAFSA, but it will relieve the savings hit. You could also pay for the spring semester in Nov or Dec and then file FAFSA, but it might screw up your taxes for AOTC.