<p>There may (likely) be something similar out there, but I couldn't find it after searching for a while, so here goes:</p>
<p>I received a complete need-based financial package from a tier one school for this coming year (currently a high school senior). Then my grandfather passed away, leaving my parents around $250,000 in cash and $100,000 in real estate. I checked with the schools, and this isn't "income." While my parents (and I) would be happy to help pay for my education, they make very, very little - like sub $25K (they work in a quickly evaporating field) and tell me they will need a lot of the money to supplement their income in the coming years and if they ever want to retire. So we put the figures into the financial aid calculator, and came out with $13,000 in a parental contribution. </p>
<p>Now they want to invest it (except the real estate) So question: Where would it be best to put this money? Savings? Primary residence equity? Retirement account of some sort (they currently don't have one)? Is there somewhere that is looked upon most favorably?</p>
<p>Hopefully it wasn't terribly complicated, and thanks so much for any helpful answers! I really can't thank you enough.</p>
<p>Does your current package include any loans?</p>
<p>Generally the best place to shield money for FA purposes is in retirement assets. However, it is difficult to contribute large sums at once without getting into complicated devices like annuities. If your parents are self-employed there can be some options there.</p>
<p>Second best is primary home equity. CSS schools treat equity in your house in different ways. Some cap the amount they count, some use a multiple of income, some don’t cap at all. You will need to find out what your school does.</p>
<p>If you have to come up with an extra $13000/year, this is not insurmountable. You the student can borrow around $24000 (I forget the exact total) over 4 years. A part time job of 10 hours/week at minimum wage will get you about $10000 over 4 years. Summer jobs, maybe another $10,000. So assuming your package doesn’t already include loans, that would leave only around $8000 over 4 years. Maybe your parents can kick in a few thousand per year. </p>
<p>Also remember that it can also be cheaper than what the COA says - moving off campus in particular can save a lot of money.</p>
<p>Do you have younger siblings that are college-bound?</p>
<p>Don’t put it into savings, it will count against you next year. Retirement and home equity, like notrichenough said. I would suggest that your parents see an accountant regarding this. You still may run into trouble but an expert is the most likely to get this right.</p>
<p>Thanks for your response! I do have one older brother in college, so the parent contribution will go up when he graduates in 2013. I will definitely be working, but I already took off that amount from the $13,000 (Originally $17,000 per year family contribution). My parents are self-employed, but they tell me the max they can put in together would be $12,000, which, they tell me, would not make a large difference to $250,000 plus $100,000 real estate. Thanks again</p>
<p>Okay, a quick google search revealed that they do not consider home equity (for Harvard. If anyone knows otherwise, please correct me). Our current home is almost paid off after decades of living here, so it can’t take much more equity. So the best option would be to move to a house which can hold more equity?</p>
<p>It helps to know it is Harvard, they are very generous with financial aid for middle income families. I think you should call the financial aid office and explain the situation. If they can they will tell you what you can expect next year if you were to put this lump sum into savings, for instance. It might not be that bad. Don’t move yet, that has its own set of expenses and it might not be necessary. Congratulations for getting into Harvard.</p>
<p>If your parents now have $250,000 in cash, you say it will add $17,000 to your EFC for next year. Are you sure you did the calculation correctly? There’s an asset protection allowance which needs to be subtracted out first. At any rate, say it increases your EFC by $11,200.</p>
<p>Your parents presumably want to preserve this windfall as much as possible, which is understandable. One option would be to invest in dividend-producing stocks and use the interest to meet your increased EFC, not touching the capital. For example, some stocks will pay 5% dividends every year. If you invest $250,000 and earn 5%, there’s an income stream of $12,500 every year that can be used to meet your increased EFC. It’s not completely risk free because the value of the underlying stocks can go down, so you’re not guaranteed to end up with $250,000 in 4 years. But it’s one approach that would be preferable to tying up cash in your primary home because at least you will retain some liquidity.</p>
<p>Here’s one website (there are many) to learn about this kind of investing:</p>
<p>You can switch over the money market accounts in the future if (when) you find that interest rates skyrocket and make it worth your while to hold interest-bearing investments.</p>
<p>Edited to add: no, don’t take on more debt by moving to a more expensive house if your parents have no retirement savings.</p>
<p>That’s a big decision. I’m not sure that parents who want assets for retirement would want to invest them into buying a bigger home if they already have theirs nearly paid off. </p>
<p>Perhaps necessary or desired improvements to the home if they’re planning to stay in it long-term (or improvements that a real estate agent agrees will increase the home’s resale value if they intend to eventually sell it)?</p>
<p>If your parents’ cars need replacing, now would be an opportune time to do that. Don’t waste money on things they wouldn’t usually spend it on, but try to concentrate some necessary spending between now and your next financial aid form deadline.</p>
<p>I think they definitely need to consult with an accountant, but be aware that many accountants aren’t experts on financial aid issues, so try to find one who explicitly is.</p>
<p>It’s also <em>possible</em> that your school would allow your parents to designate the funds as retirement savings even if they can’t get them all into a retirement fund right away. Usually schools will not do this, but it couldn’t hurt to explain the situation and your parents’ low income and ask there’s any way that it can be designated as retirement savings while your parents take however many years it takes to get it into a retirement vehicle.</p>
<p>Financial aid calculators don’t really apply when it comes to Harvard, so you really can’t make assumptions.</p>
<p>IIRC, Harvard is free for families making less than $60,000 per year, subject to asset amounts which AFAIK they don’t publicize. As Pea said, you will need to contact Harvard.</p>
<p>
They should consult with an accountant or call one of the big brokerage companies like Fidelity. There may be ways to save more than $12K/year.</p>
<p>Okay, thanks guys. I talked to my parents. They are completely against the stock market (despite my reassurances of the fair amount of stability in large cap income stocks), and they tell me that they did call an accountant, which was where the $12,000 per year came from. I will definitely call Harvard with the situation, and maybe ask about designating it as retirement. So thank you all again, especially for giving me the heads up about not counting all of the primary home equity in calculations, which seems to really change the EFC.</p>
<p>One option for your parents would be to invest this in an annuity. This is a kind of private retirement account. They can talk with their bank or credit union about it. Annuities are tricky investments and are definitely not for everyone. </p>
<p>I’d suggest popping by the library, and laying your hands on a recent edition of “Personal Finance for Dummies” by Eric Tyson. He has a nice way of explaining the basics about many different financial issues. This would give you and your parents ideas about the kinds of questions they need to ask when they are looking for advice about their financial situation.</p>
FYI, here’s a good summary of the plans available to self-employed/small businesses. Some allow contributions higher than $12,000/year. (I don’t know anything about this company, I just like their web page.)</p>