Q. I started a basic savings account for my daughter with me as the guardian when she was born. She’s now 16 and we’re looking at schools. What do I do with this account which is in her name?
A. We’re glad to hear you started saving early.
It sounds like this was opened as a custodial account, known as a Uniform Gifts to Minors Act (UGMA) account or a Uniform Transfer to Minors Act (UTMA) account.
If so, the account would be owned by your daughter.
The Free Application for Federal Student Aid (FAFSA), which is used by the government to calculate your Expected Family Contribution (EFC) for college, is very specific about how it treats parent-owned assets versus student-owned assets, said Steven Sirot, co-founder or College Benefits Research Group (CBRG) in Roseland.
“They utilize an algorithm for calculating your EFC, which is then used to determine if and how much help the family would need to fund a college,” Sirot said.
Parent-owned assets are generally factored in at 5.6 percent of their value.
Student-owned assets are factored in at between 20 to 25 percent, and therefore any savings in the student’s name could result in a lower calculated need and financial aid award, he said.
Your question relates to the fact that student assets are counted more than the parent assets.
It might make sense to spend these dollars down first, Sirot said.
There are, however, rules for what custodians can spend dollars on for the benefit of the minor.
“You may remember the situation with the child actor from `Diff’rent Strokes’ who actually sued his parents for mismanaging his earnings by inappropriately purchasing items which were not for his direct benefit,” he said.
He suggests you study up on what assets are counted in the financial aid formula and relate this to your overall plan to fund college. Consider working with a financial advisor who can use a holistic approach in building a plan, he said.
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