20 May Child earnings and financial aid

Q. My 16-year-old plans to work all summer and save the money for college. Where should we put the money? We don’t want to risk losing it in the stock market and we want to make sure it doesn’t have a negative impact on his financial aid. Help!
— Mom

A. Just about all funds are considered when you apply for financial aid.

One option would be for your child to cash his or her check and not deposit the earnings to a bank, said Stephen Craffen of Stonegate Wealth Management in Oakland.

If you use the cash option, though, you’re essentially going to be lying on the financial aid application in an attempt to hide the funds, and that’s not a great idea.

The earnings will still show on your child’s tax return, though, and so the money will show as income even if it’s not sitting in a bank account.

Another way to keep it out of the equation would be to make a contribution to a retirement account, such as IRA, Craffen said.

“The downside to this strategy is that the funds will not be available for withdrawal until age 59½, so they can’t be used for college,” he said. “If cash is withdrawn earlier, there is a 10 percent penalty.”

Your child is so close to going to college that a long-term investment isn’t advisable, Craffen said.

Learn more about financial aid here.

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This post was first published in May 2016.