<p>Well meaning grandma gave stocks as gifts over the years in D's name (Apple & MSFT). Now D (HS senior) has an enviable portfolio, all of which appears to be fair game for the EFC calculation. Should we sell stock now & pay taxes so the total will be lower when it comes time to calculate final EFC? Or should we leave D's investments alone and pay out of pocket for college expenses? At 21 (in 4 years) the account becomes hers alone. Is it better for kids to graduate from college without a penny to their name to stimulate motivation?</p>
<p>Others with more knowledge will probably answer…but…I think selling now will add to her income, at least for this year. Selling to lower EFC should have been done a few years ago…but…stocks would have been worth a lot less! </p>
<p>Selling, and using money for school, will lower her assets and income for future years. Are you sure YOUR income in future years will be low enough to reduce EFC in future years?</p>
<p>Your state may differ, but in my state Gift to Minor accounts transfer to the child at age 18. That was one of the reasons for a 529 vs just a savings or stock account in the child’s name. At 18, they could clean out the savings account, buy a car and go to Mexico. … not that they would or did, but the COULD. The 529 HAD to go to educational expenses.</p>
<p>No advice on paying out of pocket vs paying out of account. If the account is in the child’s name then that is their choice, hopefully guided by your advice. I personally would spend the account to avoid debt, but your financial picture may be different from mine.</p>
<p>What exactly is meant by “At 21 (in 4 years) the account becomes hers alone.”? Is there a co-owner who could become the owner of record for tax purposes until then?</p>
<p>Is she only looking at FAFSA schools? Then print out the 2012-2013 formula and work through it on paper with several different scenarios: <a href=“http://www.ifap.ed.gov/efcformulaguide/attachments/082511EFCFormulaGuide1213.pdf[/url]”>http://www.ifap.ed.gov/efcformulaguide/attachments/082511EFCFormulaGuide1213.pdf</a></p>
<p>If she is also looking at CSS Profile schools, try the calculators at [FinAid</a>! Financial Aid, College Scholarships and Student Loans](<a href=“http://www.finaid.org%5DFinAid”>http://www.finaid.org) and at the College Board website, and any calculators that are at each individual school’s website.</p>
<p>Thank you for replies! The account is a custodial account (UGMA) and our state allows custodial control to continue to age 21. For FAFSA, the money is counted as belonging to the child. happymom, thank you for the links. I need to do the worksheets to get more detail than the EFC calculator. I suspect we will use most of the account if she chooses a private school, and leave the account for her future is she chooses one of our state campuses.</p>
<p>If it makes a different in your EFC calculations to have the money in the parents’ names (5.6% goes towards EFC) vs the child’s (20% goes towards EFC), and this is money that would be used for college expenses anyway, then cash in the stock and transfer the cash to a child-owned UTMA 529 account. All 529s are assessed at the parent rate even if owned by the child. You’ll take a hit on the income side of the FAFSA calculation when you realize capital gains, plus the gains would be taxable, so you need to be sure you’re coming out ahead if you sell the stock. But if you need the money anyway, you might as well park it in a relatively low-risk fund and minimize its effect on your EFC. The 529 would typically be low-risk because the trustee would invest in mainly short-term assets due to the time horizon for college.</p>
<p>Edit: if the capital gain is reported as income on the child’s taxes and is under the student income protection allowance for FAFSA ($5250 last year) then there’s minimal effect on the income side.</p>
<p>Would you normally plan to keep the stock investments as stocks or are you liquidating to pay for university? Is there anyway to roll the value into a 529 plan?</p>
<p>I have to ask…did the grandparents hope that this investment would help with college?</p>
<p>Here is my suggestion. Use one of the online EFC calculators. Put your numbers into it. See what it comes up with for a family contribution. Then what I would do…run the calculator without the investment portfolio asset. The EFC is primarily based on parent income (and those assets…especially if sizable and in the student name)…see if your family contribution is still high. Bottom line…if your family contribution is near to the cost of attendance, it really won’t matter.</p>
<p>Are the stocks worth enough to pay her way if she decided to go to a state school?
We bought U.S. Savings Bonds in our kids names from infancy to use as college funding. The bonds made enough to pay for our state schools.</p>
<p>Folks on the financial Aid forum will be able to help with your questions. A few work in the financial aid offices.</p>
<p>Kat</p>
<p>We had a similar situation except that the funds were those we had saved for our kids college. We used funds from the kids accounts each year, private school for both with no financial aid. By using the funds each year the amount was reduced so less money counted against any future financial aid. Plus the money had been set aside for college so the goal was to use it for college. DS graduated a year early so there was some leftover. Not a lot. He was twenty one so the funds were technically his. We had the funds moved to an account in his name only. He used them to set up his first apartment, etc. DD is about through hers and has one more year of school left so we are going to have to kick in the balance. Each financial situation is obviously different.</p>
<p>We looked into transferring the custodial account to a 529 plan about 5 years ago, but were told (by Schwab) that it wouldn’t be possible because 529 money can be transferred to other relatives while the custodial account is owned by the child. Also had this problem with transferring money from the custodial account to a Coverdell Education Savings account. We had to transfer money first to a savings account, then to the Coverdell account. Hopefully Schwab has revised their policies, because transferring to a 529 makes great sense. Depression era grandma started the account because she doesn’t believe in debt, so we should use the funds as they were intended (for education). I was hoping for a simple tax season, but it looks like it’s not going to happen.</p>
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<p>I think that answers your question…somehow use the money for your daughter’s education…sounds like a wonderful gift from grandma.</p>
<p>I’m pretty sure a UTMA 529 account *can *be opened where the child is the owner and the assets can’t be transferred to anyone else. But the UTMA 529 is assessed like a parent asset by FAFSA. However if the funds are not used for education, they would attract taxes and penalties on withdrawal.</p>
<p>It’s true that UTMA funds cannot be transferred to a parent-owned 529. UTMA funds can only be transferred to an account that’s titled the same as the original UTMA. That’s why they can go to a child-owned 529. </p>
<p>One difference between a parent-owned 529 and a child-owned 529 is that the beneficiary can be changed for a parent-owned 529. So if a parent opens a 529 for Child 1 but doesn’t use all the funds for Child 1’s education, the parent can change the beneficiary to Child 2. Funds originating from a UTMA belong to the child (with the custodian having a fiduciary duty to use the funds for the child’s benefit). The beneficiary can’t be changed on a child-owned 529 in the same way as it can on a parent-owned 529, which is to protect the interests of the minor.</p>
<p>Maybe Schwab wasn’t clear on this. I’ve had no issue with transfers from UTMAs to child-owned 529s using Fidelity.</p>
<p>If the child is currently a HS senior, I wouldn’t bother with the 529 plan. There is very little time to earn investment return, and you will limit what the money can be used for.</p>
<p>For this decision, a lot depends on the family income and asset level. If the family is unlikely to qualify for financial aid regardless of what is done with this money, it simplifies the decision-making. Individual stocks are a pretty risky asset class for college money to be used within the next 1-5 years. If this was my kid’s money, I would sell soon as many shares as would be needed for the college expenses, perhaps in 3 lots a few months apart to reduce market timing risk, and put in a lower risk investment. Once you know what college your D will attend, perhaps they have a pre-payment plan, where you can lock-in tuition at current year rates?</p>
<p>If the family may be eligible for financial aid, it is generally recommended to use of the assets in the child’s name as quickly as possible, because the financial aid calculators assume a higher percentage of the student’s assets be applied to college than of the parent’s assets. Again, I would sell the stocks now, and put in a lower risk investment.</p>
<p>Very valuable advice here, it has saved me quite some time doing my own due diligence. The big question is private vs. state tuition, but we won’t know that until spring. The arguments for selling the stock seem to outweigh the benefits of hanging on to it, especially since LT capital gain rate may increase during the next 4 years. If she ends up at a private school we can always revisit the financial aid situation once the trust is depleted. I will read up on the custodial 529, but if it is owned by the child it seems it would still count toward the higher rate of expected contribution. Every time I comment on Apple’s wild price swings D anxiously suggests we sell. I think she’ll be happy we’re finally going to do it!</p>
<p>If you or grandma thought you would be subject to the estate tax and want to maximize your childrens’ inheritance and minimize the government’s take of your savings, you should pay the tuition bills yourself(s). It doesn’t count against the annual per person gift amount that you are “permitted” before having to pay the government a matching gift (gift tax). And it doesn’t count against your lifetime exclusion from the gift/state tax. </p>
<p>If you don’t think you’ll be subject to that tax, then its moot.</p>
<p>Student-owned 529 plans calculates as a parent asset rather than student assets at some schools. (Someone else will have to answer if it is at many schools.) </p>
<p>For example if you go through Rice’s calculator it states: “Students who must report parental information on this form should report all qualified educational benefits or education savings accounts owned by the studentincluding Coverdell savings accounts, 529 college savings plans, and the refund value of 529 state prepaid tuition plansas a parent investment.”</p>
<p>Don’t know what schools your daughter is interested in but try plugging your numbers into a specific school. You can compare this to the calculations on the college board instutional method.</p>
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Not on FAFSA. A child owned 529 account is reported as a parent asset and therefore has a maximum impact on the EFC of @ 5.6% rather than the child rate of 20%.</p>
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