<p>Here are the details of my situation. My parents have a income around 145K. My family has ~$100,000 in a few different 529 accounts under me and my sisters name. My sister is 21 years old and is not going to college anymore and does not intend to in the near future. My oldest parent is 56.</p>
<p>I'm applying to H,S,Chicago,Caltech,D,USC ,Columbia and Rochester along a few safeties. </p>
<p>The first question I have is how do CSS schools do asset protection? The FAFSA is very clear my parents would get $40600 protected the first year. I believe that most schools do things differently but is there a general rule on about how much is allowed with mid-50ies parents? </p>
<p>Assuming that the CSS schools protect about the same amount as the FAFSA here is what I want to do. Keep $40599 in a couple of my parents 529 accounts. Transfer the account ownership of the other accounts all to my grandmother and name my sister as the beneficiary. That way they are not counted as parental assets under the FASFA to be tapped and naming my sister as the beneficiary makes them not counted under the CSS/Profile.
For my first year in school my parents can use the money in their name to pay for my school. Then we can move the money that my grandmother has back into my parents name under the asset protection for the second year and then the third year. My senior year could either be financed directly from my grandmothers 529 our transferred because it would not effect next years FA considering I would not be in school anymore.
Is this ethical, or legal, would it even make that much of a difference to be worth the effort? Would there be any tax implications?</p>
<p>On the FAFSA it would reduce our EFC by 7000 dollars but I ran the numbers on Harvards, USCs and Columbias calculators and it was less. Harvards had no change in the net price, but Harvards calculator is not very detailed. USC had an increase of ~$5000, and Columbia had a change of ~3000 dollars.</p>
<p>If this is not making a change in your net costs per the NPC, why are you doing these financial gymnastics?</p>
<p>The FAFSA EFC is really not helpful to you at all. It is primarily used for determination of federally funded need based aid. With your family income, the on,y thing you would qualify for would be an unsubsidized Direct Loan.</p>
<p>Your schools are Profile schools. Some Profile schools require the listing of all 529 accounts for just the reason you are listing. It is because some of these accounts CAN be moved around. Profile schools can and do have varying formulas for assessing assets. </p>
<p>The Net Price Calculators will be a good estimate UNLESS your parents are self employed/own their own business, you own any real estate other than your primary residence, your parents are divorced/separated, or any other unusual financial circumstance.</p>
<p>Also, are you a HS senior NOW? The NPCs are good for students enrolling fall 2014. They will be updated for subsequent years to reflect the current financial aid policies for students in upcoming classes.</p>
<p>As 4Kidsdad states, make sure you check and see if it’s even an option to move around your 529s. In some states and plans, you cannot.</p>
<p>It appears you can do as you ask, though I do believe that there are intent questions on PROFILE in terms of relatives coming up with money to pay for your tuition. What the ethics of this is, I do not know. It’s one thing to leave out unearmarked money that Grandma says she’ll give because anything can happen and peple change their minds. Just because Grandma is promising $10K a year for your school, until she gives it, it’s no sure thing. But when Grandma has 529 funds transferred to her for safekeeping, and the plan is for her to transfer them back to your parents at strategic times, the question is far more directed. Also some PROFILE schools may require a listing of all 529 accounts in everyone’s names, parents, siblings and yours for just that reason. You can still get around that by sticking a random cousin’s name in there and switching it over after the fin aid forms are filed and then paying the college bills over in a quick sleight of hand, but IMO, and IMO that is a clear violation of the questions asked in PROFILE about availability of funds from relatives. Legally, it probably could hold because I guess Grandma can change the beneficiary on the 529 anytime and do what she wants with that money. Check the PROFILES and fin aid forms and call the fin aid offices and see what the specific questions are in reporting the 529s for which family members.</p>
<p>A problem with all of sleight in hand stuff is if Grandma dies or needs to go into a nursing home and Medicaid eligiblity comes into play. Cousin Abby whose name is randomly on the 529s that Grandma owns may not be so willing to give up those funds, you know. And those assets can count toward estate depletion in the 5 year look back rules. If the schools you are researching do not ask if there are 529s owned by ANYONE in the immediate family’s names, some of that might not be an issue. That is key.</p>
<p>As for asset protection amounts, PROFILE and schools using their own forms can ask and use info and %s anyway they please. Maybe your parents get an asset protection allowance, and maybe they do not. The FAFSA allowances hold fast only for FAFSA. It makes sense that there is SOME protection allowance and by playing around with NPCs you can see what they are and what the percentages are over that amount. Do your parents have absolutely no assets outside of the 529s, no ownership of a home, etc? Do they have a family business? </p>
<p>Why don’t you print off the fin aid foms of those schools, and the current PROFILES for those forms and fill them out as though you are going to school this fall and see what they specifically ask. Some schools will have a larger asset protection allowance–such as Harvard and smaller percentages, gradated ones so coming up with an exact number of what your parents will owe on any assets is difficult to just guess. NPCs are often not so exact in catching these things either. But by playing around with them, you can key in on the asset amounts that start counting unless that school counts ALL parental assets on a gradated scale. I don’t recommend you using your own info–come up with a generic student, so it doesn’t come up when you do your real numbers, sometimes that can happen as things get retained once you go on a college webstite.</p>
<p>“Are you saying you are trying to get 3k-7k more financial aid while you have 100k 529 available from a family with 145k annual income?”</p>
<p>Billshco, What is the matter with that? If it can legally and by the rules of the colleges involved be done without other issues which we are trying to address, any family should look into shifting assets and putting themselves in the best position to get the most fin aid. The same goes for paying taxes, Medicaid eligibility for elders, etc. College payments are no different. What’s the problem? You think billionaires don’t go after tax deductions? For most families, even making 6 figures , $3-7K a year for four years is not chump change. There are also other kids in the picture.</p>
<p>@Billshco, $7K times 4 is 28k or half a years worth of tuition at most of these schools. Why wouldn’t I try to maximize my award.</p>
<p>Thanks cptofthehouse for you detailed response. An option we can do under our 529 after transferring the ownership is to give one of my parents power of attorney over the 529 plan giving them some control over the account. In addition, my grandmother can name who she wants to give the account to if she were to pass away which we could make my parents. However, doing those things it would be less likely to make the claim that the money was not intended for my use. </p>
<p>I’m a current senior now. I logged onto my css profile account and added all of my schools and UChicago is the only school requires you to “Enter the total value of assets held in Section 529 college savings plans that were established for the student by someone other than the student’s parent(s).” I’m inclined to answer that question truthfully for chicago because they will be the only school that gets it and the rest will not. </p>
<p>I have found we can’t use funds in a relatives name for current year expenses if they were not reported or else the next year the count as untaxed income. Based on that we should still keep some of it in my parents name, I’m thinking around $30k which would be about how much my parents would be drawing from the 529 per year anyway and just not worry about the asset protections for individual colleges. </p>
<p>My parents do own a home but the equity they have on it is only about 20k so I doubt that will affect the aid much. They are going to use almost all of their cash to pay down credit card debt so the effect of savings on will be limited. </p>
<p>Does anyone have insight on the tax implications of this?</p>
<p>You’re “inclined” to answer that question truthfully? To me, this confirms the tone of your first post. You’re willing to shade the truth to achieve an unfair economic advantage.</p>
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<p>No one here can give you any meaningful, specific tax advice without a whole lot more information. And you and your parents would be fools to rely on any such advice.</p>
<p>Couldn’t tell you about the most recent question, but I have another. Won’t giving Grandma essentially 70K create a tax nightmare for her in terms of gift tax (and then she’s supposed to give it back to you parents, who should also report it as a large gift?)</p>
<p>I am not saying 4x3k or 4x7k is not a lot of money. Indeed, it is a lot of money for those who really cannot afford college without it. I am just thinking of those who do not have 100k in 529 and make less than half of that per year struggling to get that amount of financial aid. This may be a legal way to do that, it just does not sound ethical. Just like people taking out all the cash from the bank account and keep it at home or in a relative’s account so that it would not be reported in FAFSA.</p>
<p>Tax advice to be accurate needs a lot of info and when one gets info on just a small part, it’s like peeling an onion as more info arises, so that’s something you need to get specific to all party’s situations. College costs are just a small part of the full tax picture. If you want a good example of what I am saying, take a peek at some threads on this board with students asking how to file. The combinations and possibilities are all over the place.</p>
<p>You and your parents will have some issues in terms of claiming the tax credit, shuffling around what portion of what is attributed to tuiton and other expenses for which aid can be received without being possible taxable. It will come down to your financial package. You and your parents will likely have to shuffle things around to arrange what you attribute as paid by grants, what is paid by 529 funds in order to take best advantage of the tax credit out there. Clearly you cannot get a tax credit for what you pay with 529 funds or by grants. And grants that go towards room and board are open to be taxed if the numbers pan out. Also depends on what you might earn in the year too. It’s not easy, and there is no one size fits all answer. Just as you play around with the NPCs, you do have to do the same with how to organize your college expenses and how you attribute them paid. It can make a difference.</p>
<p>One thing about UChicago that is unusual is that they will stick the student to a schedule of assets first declared on PROFILE. It really behooves you to have zero assets in your section of their PROFILE. 529s tend to be in the parent’s section. Don’t know how it works however with UC. But they carry forward whatever you have as student over all 4 years. You can’t just use up your asset that first year, even if you had to do so, and report less than a formula amount based on that first year figure. Look it up on their website–it spells it out, and you’ll see what I mean. So you should make sure that you have no money of your own on the day you fill out your fin aid forms for that school in particular, spending it or repaying your parents for their expenses incurred.</p>
<p>Billscho, you don’t determine the ethics. The schools do. My closest friend got over a hundred thou in aid for kids, including full PELL due to careful planning between her ex husband and herself. She had a zero EFC living off the HELOC on her million dollar home, and her husband who made over a half million a year squared it up after both kids finished college. All legal. The PROFILE schools, as a rule, would not permit that but FAFSA schools did. Until NYU went PROFILE, kids with split families often made out better there than at schools that counted the non custodial parent assets. </p>
<p>For those who look and plan, there are some niches where one might be able to save a lot of money, and it doesn’t matter how much your income is if you can qualify. If you read the investment,money articles, google a few sites, they are rife with advise on how to work the rules the best way. </p>
<p>There are also those who outright cheat, lie on the forms to get the benefits too, and that is illegal, and this board will not condone such things. But to find a legal way to maximize aid, go to it! That’s why, in part, this board exists. Who are you or I or anyone to make rules outside of those already made?</p>
<p>Trying to hide an asset in order to get more aid is very different from giving money to a charity to get tax deductible. You may not agree, but everyone can judge if something is ethical or not. There are certainly legal and ethical way to maximize your aid such as putting money in your IRA account before submitting FAFSA. But there are also legal but not ethical way too.</p>
<p>If you are living in a million dollar home and getting a PELL grant then there’s something wrong and leaning towards illegal about how ya did it…</p>
<p>You all have your opinions, but they are not the way the laws are drawn for legality. it is perfectly legal. Not a thing illegal. </p>
<p>It is illegal not to declare an asset you own when it is asked on the forms, but you will get advice even from college financial aid advice columns, yes, right from the colleges themselves, to file your forms on the day your accounts are not so flush. Spend it down. For student to pay down their accounts, reimburse their parents for expenses, since students’ are hit up at 20% on FAFSA and even more at some PROFILE schools, whereas parents have an allowance are assessed a lot less. </p>
<p>Nothing at all illegal about owning a million dollar home and getting PELL. Primary homes are not included on FAFSA whether they are worth a hundred thous or ten billion. Them’s the rules. So what’s leaning illegal about it. Read it up. I didn’t make the rule. You own a multi million dollar house, and fill out FAFSA, it doesn’t go in the asset value. You want to live off a HELO on it, that doesn’t count a penny towards it. You have less than a threshhold amount of income, then you get an auto zero EFC but you could be living on 6 figures of loans off your HELOC. I watched someone do it for 6 years. Perfectly legal.</p>
<p>What’s kind of unfair is that if you have saved money over your allowed amount, you get dinged 5.6% of it each year. For me, with all my kids, spread out over all these years, we are talking a lot of money. 4 years per kid, 5 kids, you do the math. Someone exactly in my financial position who didn’t save a dime and blew all the money doesn’t get that hit. For one year, it’s just 5.5% Multipyly it out by 20 and see what you get That’s where the saving penalty is.</p>
<p>Run the net price calculators at any of the schools that I have mentioned and tell me that people with no assets and an income of <70k are “struggling” to get the same amount of aid someone with an income of 145 is.</p>
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<p>This was exactly what I was asking. I did some quick googling and found that the gift giver is the one who pays the gift taxes. My initial reading is that moving this money around is tax free.</p>
<p>From the irs website:
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<p>That clears up the changing around of beneficiaries and I think clears up the change in ownership of the plan. When changing ownership the beneficiary stays the same so there would be no gift, the money has already been given.</p>
<p>I’m going to have my parents talk to an accountant to double check but this all appears to be perfectly legal and tax consequence. Most colleges do not ask about this kind of money so there is even no gray area to dwell in.</p>
<p>It also depends upon the state. NY state did not, the last I checked, permit transfers of 529s. Don’t know the specifics. Also it could depend on the plan itself.</p>