So grandparents put some money in an account for D18 when she was a baby. They put it in her name and my name. How does it get listed when filling out financial aid forms? It is not a lot of money, less than $15,000. It is in an account that was set up through a financial adviser but is not a 529.
Obviously it gets listed but I’m not sure how.
Thanks!
Who gets the interest statement from the bank every year…and includes that interest in their taxes?
Any chance you can move it into a 529 now!
@BelknapPoint your thoughts?
Ok I feel so silly but this isn’t my area of expertise. So some is in a fiduciary trust. The rest is in an education savings fund. It is in her name and I am second on it.
Is this different than a 529? Why would a 529be preferable?
For what it’s worth we won’t get fasfa money but are hoping for something from the CSS schools
If the money is in a 529, it is considered as parental money for the FAFSA and possibly for some CSS Profile insitutions. To find out how it is handled at each place, you need to run their Net Price Calculators.
529s have only been around since 1996, so it’s possible the grandparents weren’t familiar with them at the time they made these gifts. A 529 is considered the property of the donor (typically a parent or grandparent). Earnings on investments in the 529 accumulate tax-free and also aren’t taxed when withdrawn to pay for the qualified educational expenses of a qualifying family member, so there are tax advantages to holding college savings in this form. But there are also financial aid advantages. The named beneficiary of a 529 has no legal right to the funds, because the owner of the account can change the beneficiary designation at any time, or withdraw the funds for other purposes (subject to tax penalties). In a trust account, the funds are considered the property of the beneficiary for FA purposes. The federal government and most schools expect that each year, 20% of the student’s assets will be available to pay for college, while the parents typically are expected to make only 5.64% of their “unprotected” assets available for that purpose. What’s “protected” depends on the age of the parents. Grandparents aren’t expected to make any contribution to a grandchild’s education, so as far as the federal government is concerned, their assets don’t count at all for financial aid purposes—though I believe some colleges now do ask and may consider any 529 accounts held by the grandparent naming the student as beneficiary. As a consequence, the same $15,000 will be treated very differently. depending on whether it’s held in the child’s name, or the parents’, or the grandparents’.
It’s hard to say for certain without knowing more about the particular accounts, but it sounds like in this case the grandparents gifted these funds to the grandchild, making them the property of the student. That’s almost certainly the case if the trust account names the grandchild as the sole beneficiary. But that also may be true in the case of the “education savings account” if it’s just an ordinary savings account with a joint tenancy designation. People will often informally use such accounts as de facto custodial accounts, trusting the parent to manage the account for the benefit of a minor child. If the donor intended the funds to be used only for the benefit of the child, it’s probably the child’s money, not the parent’s, and should be counted as such for FA purposes, mainly because (unlike a 529) the child has legal rights to those funds… But there are other specialized forms of “educational savings accounts” (like the Coverdell educational savings account) which are treated like 529s for FA purposes. Much depends on exactly how the money is held.
CSS Profile schools are going to want to know the value of that asset…so are FAFSA schools. In other words…what amount is in your daughter’s name, it doesn’t matter if it’s in trust or an educational savings fund (what IS that?? You need to find out exactly what this is).
TBH, it might be better placed in a 529…if the grands will allow that.
But the nice news is that even if assessed at 20% of its value…anything you spend will be for your kid’s education…and that is what the grandparents wanted…right?
It sounds like this is money gifted to the student from grandparents, which would make the student the legal owner of the money. In most cases it would be reportable on FAFSA as a student asset, unless it was in a student-owned 529 account or Coverdell Education Savings Account (this may be what OP is referring to as an “education savings fund”). The first thing OP needs to do is to make a definitive determination as to what kind of accounts are involved, and who the legal owner is. If D18 is the legal owner, she may now also have control of the accounts, depending on what the trust terms are and what the state age of majority is. If D18 is the legal owner and she has legal control, any use of or change to the account will need to be approved by and initiated by D18.
True, you’ll end up spending all or most of this money whether it’s considered the child’s money or yours. But that designation could affect the size of a need-based FA award.
I’d also be careful about assuming you have the right at this point to take money that legally belongs to the child and place it in a 529 account owned by the parent. Maybe no one would question it, but that doesn’t necessarily mean it’s legal. A 529 is funded by money that belongs to the donor and it remains the property of the owner until it’s withdrawn for the educational expenses of the beneficiary… If this money was gifted to the child, it’s the child’s money, not the parent’s. And if it’s a completed gift, even the donor doesn’t have the right to undo it.
The money was gifted to the child with the intention of it being used for college. That is exactly what I plan to use it for.
I saw an earlier post about timing of withdrawals from 529. Honestly I just thought we would divide it by four and give her that amount each year. But in my ignorance I don’t want to miss important things.
The statement comes twice a year and honestly looks like my retirement statement. The money is in some kind of growth fund. But I need to learn about withdrawals, taxes on it etc.
is it too late to transfer it to a 529? Does it make sense to do that?
I can call the financial adviser grandparents used to set it up. But I don’t know if they will know the nuances of college money. If they don’t that will make two of us
Folks…even if placed in a 529 account in the student name…for FAFSA purposes it’s treated as a parent asset.
Of course…Profile schools can do as they please.
@bclintonk obviously I don’t want to do anything illegal. I did watch ‘Orange is the New Black’
Is any of this gifted money currently under the control of a trustee, conservator, guardian, etc.? If the answer is “no” for any part of the money or you’re not the designated trustee, conservator or guardian, it doesn’t matter what you plan to use it for. It’s not your decision to make. That power belongs either to your daughter or the person who was named to manage the money for your daughter until she legally assumes control.
I am the designated guardian on the account. Both of our names are listed, hers is first. The only reason I would want it to be in my name, instead of hers, is so it will be considered at 5% instead of 20% when they are determining need. Every bit of it will go to paying for her college
As you have described things, the money is not “in your name” in a legal sense. The only way for the money, which belongs to your daughter, to count as a parent asset for financial aid is to put it in a student-owned 529 account or a student-owned Coverdell ESA. In any other kind of account, it does not matter whose name appears where on the account statements and it does not matter whether or not there is a trustee, conservator or guardian appointed.
The 5.6% for parent assets…and 20% for student assets is for FAFSA purposes only. You indicated that you won’t qualify for federally funded aid…and you hoped to at Profile,schools.
You need to understand…that 5.6% and 20% does NOT necessarily apply when the Profile is used. Profile schools can assess the asset amounts using ANY %age they choose to use.
While true in principle, this statement doesn’t quite reflect reality. All Profile schools that I’m aware of will expect student-owned assets to be fully (or almost fully) available to pay for college, and for parents to spend down a smaller fraction of their assets to pay for their children’s education. They expect that their graduates will be penniless or nearly so upon graduation, but they don’t expect to leave the parents penniless, not least because the parents will typically have much bigger and broader financial obligations—often including other children to feed, clothe, house, and educate—and because the parents will have fewer years to retirement than the newly graduated student. So while the exact percentages may vary. student assets are invariably “taxed” more heavily in the financial need calculation.
I don’t see anything wrong with thumper1’s assertion that you quoted at the beginning of your post, such as it is written, but I will tell you that there are definitely Profile schools that do not award financial aid with the goal of leaving their need-based awarded graduates penniless (or nearly so).
So I finally got around to calling about this money that is in account for my daughter. Turns out it is a Coverdell education savings account. It is in her name and my name.
The investment guy who set it up with grandparents said it is not taxable as long as used for education.
So back to filling out CSS profile. Is there a place to list this kind of thing? To I list it under parents assets?
Many thanks
I take it that your daughter is the beneficiary and you are the account custodian. A Coverdell ESA works somewhat like a UTMA, where the account funds can only be used by or for the benefit of the beneficiary.
On CSS Profile it should be reported as a student asset in the SA section. On FAFSA it should be reported as a parent asset in question 91:
As of today, what is the net worth of your parents’ investments, including real estate? Don’t include the home in which your parents live. See Notes page 9.
Very helpful! Thank you