How can we best position savings for college costs?


Q. My son is a sophomore in high school and we’re starting to talk about college. We have some savings in his name in a custodial account and some in a 529 plan, but it’s not nearly enough to pay for most colleges. Is there something we can do now with our savings to make sure we get as much financial aid as possible? We have a house with no mortgage, about $500,000 in three retirement accounts and that’s about it.
— Mom

A. When it comes to the always-increasing costs for college, it can be hard to save enough.

There are ways, though, to position the assets you have so your family can be eligible for more financial aid.

First, understand how custodial accounts are considered.

Custodial accounts are treated as an asset of the students on the FAFSA form that is filled out beginning Oct. 1 of the student’s senior year, said Jody

D’Agostini, a certified financial planner with The Falcon Financial Group in Morristown.

This is used to determine the financial aid package, if any, for the student and what the family can expect to contribute, she said.

“Custodial accounts are either UGMA or UTMA accounts and are considered for needs-based financial aid and 20% of it should be expected to be used to pay for college,” she said. “These accounts have a large impact on the financial aid eligibility and can reduce the award by as much as 25%.”

If you transfer the money to the student’s 529 plan, these assets would now be considered assets of the parent with a much more favorable financial aid treatment, D’Agostini said, and will be weighed only at 5.64%.

“You would need to liquidate the account, which might have a tax implication, and deposit into the student’s 529 plan,” she said. “You would have to use these assets only for the beneficiary.”

The 529 plan is more advantageous if used for college on many counts, D’Agostini said.

Earnings grow income tax-free, and if used for qualified higher education expenses are distributed tax-free, she said.

“If you think the student might be eligible for needs-based aid, I would move the money to the 529 plan,” she said. “The FAFSA considers the prior year tax return for eligibility, so the money needs to be shifted before junior year.”

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This story was originally published in February 2024. 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.

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