How will my daughter’s money count for financial aid?


Q. My daughter started receiving Social Security benefits when her father passed away when was at the age of 10. I have saved up most of it in a savings account for her. She has accumulated quite a bit. This is for her college and she graduates high school next year. Is there an amount she is allowed to save up in certain accounts or where should the money be?
— Mom

A. We’re sorry to hear about your daughter’s father.

But we’re glad to hear you’ve been setting aside this money for the future.

This money will be considered when it comes to applying for financial aid, said Victoria Cannillo, a financial analyst with Baron Financial Group in Fair Lawn.

She said the Free Application for Federal Student Aid, commonly called FAFSA, will ask for specific account balances for assets owned by both the student and the parent.

“Any savings she has will be considered as an asset,” Cannillo said. “If the money is in her name, 20% of the savings will be considered as being eligible for use to pay for college. Compare this to parental assets where only 5.64% is considered eligible.”

To counteract this, Cannillo said. you may want to either start spending down her savings account or transfer some or all the money to another type of account.

For example, consider a 529 plan, where you are the owner, and your daughter is the beneficiary.

“529 college savings plans are treated more favorably than savings accounts when it comes to financial aid,” she said. “Earnings and withdrawals are tax-free when used for qualified expenses.”

Another option, if your daughter has earned income, is to consider a Roth IRA for her future retirement, she said.

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This story was originally published on Oct. 3, 2023. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.