<p>My son will be starting his freshman year at a private university. </p>
<p>He received a "good" financial aid package with a substantial grant from the university, work-study, and a small subsidized loan.</p>
<p>We will be paying the remainder of expenses using funds from mutual fund accounts that a grandparent set up for my son and has invested in over the years. My son has 2 UTMA accounts and 1 ed savings account. (The UTMA accounts have more $$ overall)</p>
<p>Aside from these funds, our family financial situation is pretty bad, and has suffered due to the recession.</p>
<p>For the purposes of obtaining the best financial aid possible in subsequent years, is it better to begin using the ed savings or the UTMA?? My understanding is that the ed savings is considered a parent asset while the UTMA is considered a student asset, so it would be best to use that first, but are there other factors we should consider??</p>
<p>I know you didn’t ask about this, but another item to consider regarding using funds from various sources to pay college expenses is the education tax credit. If you pay all of the tuition with funds from a tax-favored education savings account, you can’t claim the (up to) $2,500 education tax credit. (American Opportunity Credit). </p>
<p>Instead, you will want to use the UTMA money and or loan proceeds to pay $4000 of tuition in 2010 to get the maximum credit of $2,500 if all other conditions are met (AGI limit, etc).</p>
<p><a href=“Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service”>Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service;
<p><a href=“Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service”>Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service;
<p>^^ good points about the education tax credits</p>
<p>As far as EFC is concerned The 529 account (assuming that is what the educations savings account is) is treated as a parent asset and therefore has up to @ a 5.6% impact on the FAFSA EFC. Parents also have a certain amount of asset protection based on age of older parent. If total assets are below the protected amount then they have no impact on FAFSFA EFC. The UTMA accounts are a student asset so have a 20% impact in the EFC. Students have no asset protection. (the exception would be if you are eligible for simplified needs where assets are ignored or auto 0 in which case neither would have and impact on the EFC).</p>
<p>Withdrawals from 529 accounts have no tax consequence as long as the withdrawal is being used for qualified education expenses.</p>
<p>Withdrawals from a UTMA may have a tax consequence and there an affect on the student income which may affect the EFC. Student’s have a certain amunt of income protection and income in excess of the protected amount impacts the EFC by 50%.</p>
<p>In most cases it is usually best to wittle down the child’s assets before the parent assets so the UTMA would probably be best.</p>
<p>Question about a 529 account - I had heard that if the account is in a grandparent’s name (rather than a parent) with the student, of course, as the beneficiary, that it is not counted anywhere on the FAFSA. Does anyone know if this is accurate?</p>
<p>Yes it is currently accurate. One of those loopholes they will probably close at some point in time.</p>
<p>BUT distributions from a grandparent owned 529 account must be reported on FAFSA as untaxed income to the student which may negatively impact the EFC if the student’s income is over the protected income allowance. (50% of income over the protected income allowance goes to the EFC).</p>