Parent's "Assets" on FAFSA

<p>I was going through the FAFSA last night and came upon the question about parent's assets. There is no real good explanation of what to include and not include. Does anyone have a better description that what's provided on the FAFSA site?</p>

<p><a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/1601026-fafsa-question-question-explanation.html[/url]”>http://talk.collegeconfidential.com/financial-aid-scholarships/1601026-fafsa-question-question-explanation.html&lt;/a&gt;&lt;/p&gt;

<p>There is a part of the referred document that makes no sense logically. If your child going to college has younger siblings - it looks like the older child is penalized for having younger siblings unless he is expected to be able to steal from the younger child’s Coverdell Education IRA or 529 for part of his college expenses. This is horrible. If you have set aside some money for each of the children for their college expenses - why should the older child be penalized if the younger child has done a better job saving for college? Presumably, by default, Coverdell and 529 assets are all in the parent’s name - why don’t they just include the assets of the parent and student who is actually going to college in the FAFSA calculation - not steal from the younger siblings. It is especially horrible if this money is supposed to be used to help pay the younger child’s high school tuition or expenses - that the older sibling is penalized in FAFSA.</p>

<p>Based on this logic - you should NEVER save in a 529 or Coverdell IRA unless your income is so high you would not qualify for aid or until you have completely maxed out your 401K, your Roth IRA and all retirement savings.</p>

<p>Why would anyone with more than one kid ever use a 529 or Coverdell IRA if they penalize the older child?</p>

<p>“include trust funds, Uniform Transfers to Minors Act (UTMA)/Uniform Gifts to Minors
Act (UGMA) Custodial Accounts, … other securities, Coverdell savings accounts, 529
college savings plans, the refund value of 529 prepaid tuition plans… Do not include the value of
life insurance and retirement plans (401[k] plans, pension funds, annuities, non-
education IRAs, Keogh plans, etc.). Do not include UTMA or UGMA accounts for
which you are the custodian but not the owner. You should report the value of all qualified educational benefits or education savings accounts, such as Coverdell savings account, 529 college savings plan or the refund value of a 529 prepaid tuition plan in Question 41 if you or your spouse own the account
and you are not reporting parental information on this application. If you are a dependent student who owns qualified educational benefits or education savings accounts, such as Coverdell Savings Accounts, 529 College Savings Plans, or the refund value of 529 prepaid tuition plans, you must report the values in Question 89, along with your parents’ asset information.”</p>

<p>The assets in a parent-owned 529 can easily be transferred from one child to another. This is one of the benefits of a 529. This is also why all parent-owned 529s must be reported, regardless of beneficiary. </p>

<p>It is possible to make a 529 non-reportable on FAFSA, in fact it’s very simple. Each 529 can be gifted to the beneficiary so that it becomes a child-owned 529. The student’s 529 is still reported on FAFSA (as a parent asset) while his siblings’ 529s are no longer reported as they are no longer parent assets.</p>

<p>Problem solved.</p>

<p>Can this be done for Coverdell Educational IRAs (I prefer those over the 529 because they give you the flexibility to use them for the critical High School years for tuition and education expenses)?</p>

<p>And it sounds like the strategy for college saving for middle/upper-middle class families is a little different than I had thought</p>

<p>1) pay off debt
2) save maximum allowed in 401K and Roth IRA each year (you can always take it out for education later)
3) pay off house (since house is either not considered, or considered at lower contribution rate than investment assets like 529s)
4) then and only then - put money in 529 or Coverdell</p>

<p>Coverdells are already “owned” by the student, I’m not sure that re-titling would be possible but I’m not as familiar with them as 529s. The $2000/year limit on contributions means that families who want to save a lot will often have both a Coverdell and a 529. And if you’re lucky enough to be in a state that gives state tax deductions or credits on 529 contributions, then that’s a good incentive to fund one.</p>

<p>I rolled my sons’ Coverdells into student-owned 529s because the annual fees on them were higher than the gains on the account (they’d been set up by their grandparents).</p>

<p>I wouldn’t pay off a mortgage, all other things being equal. FAFSA doesn’t take home equity into account, but some PROFILE schools do. I’d just stash as much as possible into 529s and hope I had enough to pay for college.</p>

<p>Thanks for all the great information! What about Savings Bonds (I own both I and EE) but because our combined income is too high we cannot use them for education and get the tax benefit.</p>

<p>The current value is an asset. Since they’re owned by you, they’re reported as a parent asset.</p>

<p>^^ The FAFSA mentions reporting amounts over $39,XXX. What is the basis of that number? If a parent has assets of $38,500 they’re not reported?</p>

<p>Table A5 here has the parent asset allowance amounts based on the age of the older parent. The amounts have gone down $10k-$15k at each age over the last 2 years for some reason.</p>

<p><a href=“http://ifap.ed.gov/efcformulaguide/attachments/091913EFCFormulaGuide1415.pdf[/url]”>http://ifap.ed.gov/efcformulaguide/attachments/091913EFCFormulaGuide1415.pdf&lt;/a&gt;&lt;/p&gt;

<p>Now we know you or your spouses age. :)</p>

<p>The FAFSA has an asset protection formula that is based on parental age and whether there is one parent or two. If the asset protection for your age is $39,000, then you report the assets that you hold that are in excess of $39,000.</p>

<p>$39,500 - $39,000 = $500 in reportable assets.</p>

<p>But truly, it is better to have savings somewhere (in a 529 or Coverdell or CDs or IRA or 401k or just in a box under your bed) because most colleges and universities have precious little aid to give. Chances are that your calculated EFC will be much less than the amount of money that the colleges and universities will expect you to pay.</p>

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<p>No, the first question on fafsa asks if your assets exceed your allowance. If so, then you enter all assets and the allowance will be subtracted out in the formula. You don’t subtract the allowance manually.</p>

<p>2018RiceParent, are you saying that this is a good strategy for saving for college?</p>

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<p>I suppose this could work if your child was going to attend a school that only uses the FAFSA and which meets need–but I don’t think there are any schools that fit that description. As happymom says, for the vast majority of schools you’re going to be paying more than the FAFSA EFC. Minimizing your EFC means nothing if the school isn’t going to give you grants or scholarships to cover the COA.</p>

<p>It sounds like it is the only reasonable strategy if you son or daughter is trying to go to a school which promises to meet need with grants (presumably a few hundred schools, mostly elite ones) but this probably does restrict it to those whose scores/grades would be competitive at these schools.</p>

<p>Even if the school uses CSS (which includes house equity in its EFC), you are always better off saving the maximum for retirement unless you are in a very high tax state since retirement assets are not counted against you by any of the formulas. And even for the schools which do include home equity, many cap the amount of home equity that factors into the EFC, but all of the 529 and Coverdell will count against the EFC.</p>

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<p>Less than 100. More like a dozen or so.</p>

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<p>…at the rate of 5.6% for any amount above the asset protection allowance. If you’ve saved $50,000 in a 529 and your age-based asset protection allowance is $40,000, no other assets, then your 529 will add $560 to your EFC. Which would you rather have, the ability to pay $12,500/year for college or the risk of relying on generous but relatively low probability financial aid?</p>

<p>Most (if not all) schools that guarantee meeting need use the CSS, so yes, some (capped) home equity is going to be part of the EFC. </p>

<p>For parents of young children just starting to save, it’s difficult to predict what FA policies will be like in 10+ years, not to mention predicting if your kid is going to be a contender for tippy-top super-generous colleges. Given a choice between trying to minimize a long-in-the-future EFC and saving up a pot of money for college, I’d go with the latter.</p>

<p>No disagreement with the idea of saving - college is going to continue to get more expensive.</p>

<p>If you saved 50,000 in retirment accounts rather than 529, for FAFSA your expected contribution would be about 2000-2500 less per year (assuming you have some cash assets for emergencies - even if you can assume some of the 529 is counted against the asset protection limit), and retirement accounts often have more flexibility in saving options (low fee etc.) than 529s and thus higher yields. But for CSS schools there often is no asset protection allowance (although they may be more generous about income based contribution expectations in their formula) and 529s are assessed at a higher rate (e.g. than home equity). The after tax benefit of paying off mortgages though is small (probably under 3% per year after taxes) - but 50,000 in extra assets at 5.6% (and repeating each year) is a pretty substantial difference.</p>

<p>I’m confused about the idea of taking money out of a retirement account. I thought you can only use those funds for retirement. If you take out for something else, you have to pay yourself back and I was told that is a bad idea. Can someone clarify? It would have been great if the government allowed you to take money out of your 401k and use it for your children’s education without penalty or having to repay yourself.</p>