It sounds like this non-custodial Parent is looking for a way to contribute his $10,000 toward college costs without impacting future need based aid.
Since he does not feel confident gifting the money to his former spouse, I’m not sure there is a way to do this AND a share during his daughter’s freshman and sophomore years of college.
Yes, he could transfer all of it before he files the FAFSA for her senior year (which will be able to be done in October of her junior year), but this doesn’t help him pay the college bills…and it also gives the daughter a 529 she needs to use for educational purposes.
I have an idea. The daughter could take a loan…didn’t recent legislation offer the ability to repay $10,000 in loans using 529 accounts? Someone else here will have to clarify which loans fall under this. This $10,000 loan would be in addition to the Direct Loan the student can take.
I want to make clear, which I did not above, that once the 529 money is transferred to your daughter, the sitting funds become assets which if still sitting there the day FAFSA is filed, are assessed at 6% even if in her name. 529 assets are assessed at parents’ 6% rate even if in the student’s name.
The big hit would be the 50% hit on untaxed income when a student is given 528 or other money from anyone other than the custodial parents. The student allowance for income is currently about $6600. Anything above that gets assessed 50% towards the FAFSA EFC.
What Exactly is the breakdown in aid that your daughter received? You say the total cost of the college including room, board etc on top of tuition is $20k and that she has to pay $10k. How much is the merit money? What comprises the rest of her aid package? Does she get how much PELL money, if any? Was she given loans and work study in that package? Did she get any finauncisl aid grants from the school?
All of that info can help us give you more direct advice.
And most important…does the college guarantee to meet full need for all? If not, all these financial gymnastics very possibly could net her zero dollars in increased need based aid if she loses the merit aid.
The suggestion of the 10K student loan to take care of the first year seems like a good one.
But, as has been mentioned several times, all this might be totally pointless. At 20K/year I’m guessing this has to be a state school. What is her EFC?
It seems the only ‘problem’ year is sophomore year. The father could pay the $5000 for fall 2020 out of the current 529 with only $5000 being increased income to the daughter, which may fall under the income allowance for the student (depending on what money she earns in 2020). The 2021 tax year would have 2 semesters of $5000 each, but after that her 2022 income wouldn’t be used as an income year on any FAFSA.
We still don’t know whether the $10000 (or $5000 in income to the daughter) would take her out of Pell/need based aid eligibility. If she isn’t eligible now in this first year when there is no added income to the daughter, it’s unlikely she’s going to be eligible in years 2-4. Her mother’s income/assets should be similar in each year (maybe less if father no longer pays child support for college student).
And my kids knew if they lost a merit scholarship they’d be making up that money by earning it (or have to transfer). Most families need that merit money to make schools work financially. They didn’t have the option not to get the gpa needed, to drop classes to below 12 credits per semester, to take a semester off. Merit aid had requirements and they had to meet them.
This sounds like a Florida student getting Bright Futures. I do know kids who lost their BF by not meeting the gpa requirements, dropping below 12 credits or taking semesters off, so it is a real concern. However, it’s also possible to do everything right and keep the BF award. Planning is required.
Not clear on how the Mom is accessing funds in an account owned by the ex. Does Mom even know where the account is held?
And I agree with everyone else- unless the financial aid fairy is about to visit your home, the logic behind all of these gymnastics (plus a potential legal issue about moving the D’s assets into a bank account which she cannot access) escapes me.
Why not just have the D take out the federal loans so you’re pulling the minimum out of the 529 (even with the asset hit in subsequent years)?
I read that putting the 529 in your child’s name is the worst route because schools take much more of the student’s income than the parent’s. The best place to “hide” a 529 is with a grandparent where it is not reported on either the FAFSA or CSS Profile until money is withdrawn, and at which point it is then transferred to the parent, never the student. Once it is in the student’s name, their eligibility for aid is greatly reduced, which then requires using up the 529 faster. In the parent’s name, even when being drawn from, the aid eligibility is reduced less than if it were in the student’s name. Therefore, I suggest leaving it in your name and drawing from it there. You do not need to put it into the child’s name to use it for their education. It can and should remain in your name. A quick google search should confirm this advice unless I am missing something that makes this situation different.
FYI: 529s in grandparent’s names are not declared until they are drawn from and therefore need to be transferred to the parent to use. This is where a 529 is best created for this reason. It can be saved for later years in college and not affect aid eligibility. However, I am not sure if an existing 529 can be transferred to a grandparent and does not seem worth it at this point, when in the parent’s name it may not reduce aid as much as you think.
I would compare how having a 529 as an asset in your name (parent) compares to drawing on it (still in the parent’s name), which increases your income. I suspect it wise to keep it as an asset only in your name for two years as others commented and do not draw until Sophomore spring, and instead even take loans, but I am not certain of that.
I am assuming you use the CSS Profile and therefore your income matters as a non-custodial parent. Otherwise, if it is just FAFSA you use, keep it in your name.
Again, never put a 529 in student’s name, even when drawing, is the conclusion of all articles I read online. Someone correct me if I am wrong.
Ok… you’re wrong. To confirm what thumper1 posts, a 529 account owned by the student is always reported on FAFSA as a parent asset, and therefore enjoys the same lower assessment rate as other parent assets.
According to that question, it seems a little gray if a parent PLUS loan is taken for my child or if it is court mandated that the non custodial parent pays for college?
If it’s from a non-custodial parent and it’s not reported elsewhere on FAFSA or it’s not part of legal child support agreement, it’s reportable on FAFSA as student untaxed income.
This is old post but if you’re still on here…you seem to know what you are talking about…I’ve read on non-custodial transferring 529 to custodial parent and that’s what we want to do in our family. But I’m a little confused how I (custodial) report “receiving” the 529 money into my 529 acct for my daughter? And I guess the ex doesn’t have to report transferring it out unless IRS wants to match up receipts later (which I will have receipts)… but I feel like I should probably have to account for that money in in some way even though it all went immediate back out to the school for qualified expenses. Do you happen to know where that is shown on tax form?