Multiple kids, FAFSA, and 529 accounts

Background: Kid #1 is entering college this Fall. When filling out the FAFSA, was surprised that ALL 529 savings count towards our EFC. We have separate accounts for Kid #1, Kid #2, Kid #3…all two years apart. FAFSA didn’t care… reasoning that all 529 funds are at our disposal now to fund Kid #1.

It seems to me that we’d be better off draining the 529 savings for first two years of Kid #1 expenses, leaving less for Kid #2 and probably nothing by the time Kid #3 heads off.

Won’t our EFC be lower once Kid #1 and Kid #2 are in college together 2 yrs from now, and we’ve used the combined 529 monies to pay for Kid #1? And once Kid #3 starts in 4 yrs…there likely won’t be any 529 funds to list on FAFSA 2019.

Does this line of thinking/strategy make sense?

Yes…but it may not make much difference in the long run.

EFC is largely income driven…what is your EFC with just your income? What is your EFC with the assets?

Schools that use FAFSA EFC to determine need usually gap.

Once you’re beyond Pell, having an EFC that is lower than COA may not mean getting aid.

Schools that meet need use CSS Profile.

P.S. One reason that all the 529s are included is because if they weren’t, parents would just shove all money into the youngest child’s acct.

Thanks mom2collegekids

The difference when I ran the fafsa4caster putting only 1/3 of the 529 amount vs 100% was an increase of about 50% in the EFC.

The other consideration is the policies for each college regarding awarding of need based aid. Does the school meet full need? Does the school package loans?

The fafsa4caster is more generic. You really shoild use the net price calculators for EACH school. Those would give you a better picture.

When I’m king, I’ll exclude all 529 money, all retirement contributions, anything the kids have in a personal checking account maybe up to $10,000, kids earnings up to $20,000 from the FAFSA calculations. The government wants us all to save but then penalizes those who do. The IRS and the education department don’t really communicate, so a good thing on taxes can be a bad thing on FAFSA.

However, as pointed out above, it probably won’t matter anyway. Unless you can get that EFC below say $10,000, it won’t matter. When child 2 goes to school, the EFC will be about 1/2, and it still won’t matter if it started at $40k for 1 child.

So if you can just wait until I’m king, I’ll fix everything.

thanks @thumper1 … first time through so we’ll see what the official offers are, so far all have given decent merit scholarships, but of course Kid #1 likes the most expensive school (COA and NPC) which leaves a gap between EFC and COA…hence need to use 529 money …but hoping they come back with some need based grants to cover the gap.

@twoinanddone clearly saving and planning are not seen as good things by IRS and college finaid… can I vote you King now???

LC, did you have financial need when the 529s were added in? Those accounts reduce your need…but only by 5.6% of their value…which is added to your EFC.

At this point…just wait and see. But if the finances are going to be a significant determining factor, please discuss this with your student now. Don’t wait.

Yes, 529 funds are counted, but they are money set aside for college. They are hit at the same rate as any parental asset. Advantage is that the earnings were tax free and possible state tax reductions in contributing.

For some PROFILE schools, 529s OWNED by the student are considered student assets which really hurts.

If the 529 accounts were student-owned accounts instead of parent-owned accounts, then the only account that would be included would be the account owned by the student for whom the FAFSA was being completed, and it would be considered a parent asset.

@MiddKid86… hmm, will have to see how the accounts are setup. Are you saying that if it is in Kid #1’s name, it can still be considered parent asset (5.6% towards EFC) and not as student asset (20% towards EFC)?

I think MiddKid is correct in this for FAFSA. However, for PROFILE, if there are any such schools in the mix, some schools will include a student OWNED 529 as a student asset. But you have two kids NoT applying for college, not going to college, so it won’t matter right now if the ownership of the account is in their name or yours, and can only help your current college student. But if there are PROFILE schools being considered, the accounts should be in the parents names at the time the assets are reported because a simple ownership difference can make the difference. Your current student should NOT have the 529 in his/her own name while applying for fin aid at PROFILE colleges (though you can ask the fin aid office if it does count student owned 529s as a student asset) since it could be hit with the 20% student charge.

Yes, for FAFSA purposes (with CSS Profile it depends on the school) a student-owned 529 account is counted as a parent asset and is assessed at the lower 5.6%. In this context “in Kid #1’s name” must mean that Kid #1 is not simply the beneficiary of a 529 account owned by someone else, but that Kid #1 is the actual account owner.

Also, if Kid #1 has siblings that own their own 529 accounts, those accounts will not be reported on Kid #1’s FAFSA, even if the custodian of those accounts is a parent (or Kid #1). As you have discovered, when those sibling accounts are parent-owned, they do need to be reported on FAFSA.

Yes, it does matter for FAFSA. See my post above. FAFSA will count as a parent asset a sibling’s 529 account that is parent-owned, but a sibling’s account that is student-owned is not reported.

It depends on the school. Some Profile schools will count a student-owned 529 account as a parent asset, and some will count it as a student asset. It depends if the school more closely follows the federal methodology or an institutional methodology.

Sorry, I did not word my response clearly, What I’m saying is that is that the ownership of the accounts for the two kids not applying/going to college would not affect them as it could if there were PROFILE schools looking at the ownership of those accounts at this time, so they might as well be in those kids’ names up until those kids come to the point of applying to colleges. Also, as mentioned, callling the fin aid office might be in order to find out if schools in consideration would be using federal or institutional methodology in terms of 529s.

Most PROFILE schools do include sibling’s assets as parents’ assets and that can include the 529s. FAFSA does not, which is a big difference between institutional and federal methodology. This can be a big sticking point. I know a blended family where a step sibling has a large college or other fund from grandparents/deceased parents, and schools including that as parental assets which was a big shocker to the family.

No, assets of a sibling are not reported as parent assets on Profile, and this includes sibling-owned 529 accounts.

I will agree with OP discovery and disagree with the salary-drives-EFC comment. We have very modest income for a large family. The fact that we purchased several state Pre-Paid Tuition plans and saved triple that amount in Education IRA’s left us ineligible for FinAid AND unable to cover costs for 4 years (tuition+meals+dorm+mandatory fees) at any public state university. Having multiple students simultaneously in college does not help.

Unless things have changed, sibling assets are counted as parents. The CSS PROFILE does ask for assets in the sibligs’ namees (question 105 back a few years). So, strictly speaking, “No, assets of a sibling are not reported as parent assets on Profile, and this includes sibling-owned 529 accounts.” They are reported as sibling assets but are included as parents’ assets in terms of the percentage of assets assessed by most PROFILE schools.

A reason why this is done is so that parents do not put funds in other children’s names to avoid the 5.6% or so, asset assessment. So for PROFILE schools, putting 529 assets in the other children’s names will not avoid the assessment unless that school exempts sibling assets or maybe sibling owned 529s. Schools do these assessments differently, so YMMV. Some do not use the FAFSA %s either towards parental assets or students assets. I know some schools that hit up the students a whopping 30% on their assets and continue the assessment from the initial reporting through all four years of college.

Profile question 105 asks about parents’ assets held in the names of siblings. It has nothing to do with assets that are actually owned by siblings, which are never reported on Profile (or FAFSA). The reason this question is asked is because sometimes parents will retitle their assets in their kid’s name to avoid or reduce income taxes. This strategy is used less since the kiddie tax provisions were beefed up. But an asset that legitimately belongs to a sibling is never reported on Profile or FAFSA.

From the Profile instructions for question 105:

*If an asset is held by your parents in the name of a sibling, it is reported in PA-105

If an asset is held by your parents in your parents’ names, even if it’s for your sibling (e.g. a 529 plan), it is reported in PA-120.

If an asset is owned by your sibling, it is not reported on your PROFILE application.*

Sibling-owned 529 accounts are not reported on Profile. Period.

From the Profile Help Desk information on 529 plans (the emphasis is mine):

*529 Savings Plans are Qualified Tuition Plans (QTP) that allow parents, other relatives, and even non-relatives to save funds each year for college expenses. The owner of the plan deposits funds into the account and when the beneficiary enrolls in college, those accumulated funds (principal plus interest) may be withdrawn to help pay for the beneficiary’s college expenses.

Since these plans represent an asset they must be reported as such on the PROFILE if the parent is the owner of the plan established for the student or the student’s brothers or sisters.*

I recommend the website edvisors . they have a fantastic step by step FAFSA book that is FREE to download. And, additionally lots of helpful information.