FAFSA and younger siblings' 529 plan assets.

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FAFSA and younger siblings' 529 plan assets.

Postby 555 » Tue Mar 27, 2012 4:12 pm

For FAFSA, and other college Expected Family Contribution (EFC) formulas, what is the effect on the EFC for one child of the assets in the 529 plans for younger siblings. (Assume all 529 plans have a parent as owner and child as beneficiary.) Do they contribute about 5% of assets to EFC each and every year. This is is obviously a problem as it could `cost' you 5% of assets every year for several years for each younger sibling, depending on age difference.

Or is there a part of the FAFSA formula that ensures that you are not penalized, via the EFC of one sibling, for assets clearly intended for a different sibling.

(I'm not talking about the part that considers having 2 or more children in college at the same time.)
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Re: FAFSA and younger siblings' 529 plan assets.

Postby livesoft » Tue Mar 27, 2012 4:32 pm

I don't recall being concerned about this when we made the mistake of filing for financial aid and submitted the FAFSA.

However, it sure looks like you could hide assets in a younger sibling's 529 plan and change beneficiary temporarily to use with the college student. Since I didn't think of that, it is probably not possible to do ("hide" assets, that is. I'm sure you can change beneficiary).
Last edited by livesoft on Tue Mar 27, 2012 5:03 pm, edited 1 time in total.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby Grt2bOutdoors » Tue Mar 27, 2012 4:43 pm

I don't see how one could "hide" the assets when the FAFSA requests you to disclose all assets. The idea is even if intended for someone else, you as the parent have the right to those assets - it is yours, not your younger childs or older childs.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby alisa4804 » Tue Mar 27, 2012 5:03 pm

We had a lively discussion on another boglehead post last week, about FAFSA reporting of 529s for siblings - see this post: viewtopic.php?t=68785

They do need to be reported as part of the parents' assets. Also, the "loophole" for grandparents or other relatives holding "FAFSA unreported" 529s for granchildren closed in 2010 (college Cost Reduction and Access Act of 2007, effective 2009-2010 award year). :( .

Edited to clarify was boglehead post.
Last edited by alisa4804 on Tue Mar 27, 2012 5:37 pm, edited 1 time in total.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby 555 » Tue Mar 27, 2012 5:29 pm

alisa4804 wrote:We had a lively discussion on FAFSA reporting 529's of siblings last week - they do need to be reported as part of the parents' assets.
Yes, I would have expected they are to be reported. The question is, is there any attempt in the EFC formula that recognizes that assets are intended for a different sibling, (other than the part that considers when siblings are actually in college at the same time).

Was your lively discussion online, or was it just some other discussion you happened to have on this topic.

By the way, our kids are >10 years from college, but for planning, I'm wondering if 529s are penalized so heavily that they are not worth it. Or even that they are so bad that at some point in the future if I could not max out retirment contributions, we withdraw from 529s with tax and penalty, to cover that, to avoid a very high `FAFSA tax' (and instead take loans for kids college that we'd try to pay for them). It sounds extreme, but while 5% asset tax might not seem bad, 5% asset tax per child per year could wipe out the whole asset.


alisa4804 wrote:Also, the "loophole" for grandparents or other relatives holding "FAFSA unreported" 529s for granchildren closed in 2010 (college Cost Reduction and Access Act of 2007, effective 2009-2010 award year). :( .
Scroll down thru this post: viewtopic.php?t=68785

Just to be clear, I'm just talking about the standard situation where all 529 plans have a parent as owner and child as beneficiary. No grandparents or other relatives involved.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby livesoft » Tue Mar 27, 2012 5:36 pm

If the choice is putting money in a 529 plan for college or joint taxable account, they are treated the same as far as EFC is concerned. There is no FAFSA tax. Indeed, some joint taxable account money used for college is not taxed just as 529 plan money used for college is not taxed.

If the choice is putting money in a 529 plan for college or a 401(k) or IRA, then the 401(k) or IRA has an advantage as far as FAFSA is concerned.

In any event, a 529 plan is a mechanism for the wealthy and not really a mechanism for the poor or middle class.
Last edited by livesoft on Tue Mar 27, 2012 5:50 pm, edited 1 time in total.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby alisa4804 » Tue Mar 27, 2012 5:38 pm

Sorry - edited my post above to clarify it was another boglehead thread on 529s
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Re: FAFSA and younger siblings' 529 plan assets.

Postby zzcooper123 » Tue Mar 27, 2012 8:06 pm

livesoft: "when we made the mistake of filing for financial aid and submitted the FAFSA." Why do you say this?
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Re: FAFSA and younger siblings' 529 plan assets.

Postby livesoft » Tue Mar 27, 2012 8:13 pm

^ It was a complete and total waste of time. And we should've known better before we even started.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby sscritic » Tue Mar 27, 2012 8:26 pm

Why would you think a 529 in your name is not an investment just because it has a different beneficiary?
This is question 89 on the paper FAFSA.

The net worth of your parents' current investments is the amount left over after deducting the debt from the value of the investment.

Investments also include qualified educational benefits or education savings accounts such as Coverdell savings accounts, 529 college savings plans and the refund value of 529 prepaid tuition plans.

Note: Students who must report parental information on this form should report all qualified educational benefits or education savings accounts owned by the parents and / or the dependent student as part of the parental assets.
Search for investment on
http://www.fafsa.ed.gov/help.htm

All means all. I don't see any place on the form to separate them by beneficiary. Since you don't report them separately, the formula can't treat them separately.

P.S. I have never filled out a fafsa. I just like rules. I also like searching.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby galectin » Tue Mar 27, 2012 9:24 pm

While it is kind of gaming the system, my choice was to put more money into a 401K and not into a 529. When it came time to fill out the FAFSA, it did not count retirement assets. I figured that I could borrow from the retirement funds to pay for tuition. Therefore, the colleges viewed me as having very little money in the bank to contribute to my two children's expenses--no 529 and not very much in savings or investments. So, even though I made $80,000 to 90,000 during these times, my children got more student aid.

So, I agree with the prev. advice to max out your 401K accounts first.

I didn't need to put this plan into effect since we just made it through with current income and what savings we had and without having to borrow any money from our accounts. And now, both kids are grown and working (nobody at home in the basement looking for a job-woo hoo!), we can save even more.

BTW, just after our younger kid graduated my wife, who has a visceral dislike for official forms (I did her taxes when were were dating before we even were engaged.) saw a TV program on filling out the FAFSA and came out moaning about how many questions there were on it. I informed her that I had been doing it for eight years, and also the CSS forms that the second child's college required as well as the FAFSA. She said that she had no idea of what was involved and thanked me for not asking her to help.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby 555 » Tue Mar 27, 2012 11:14 pm

livesoft wrote:If the choice is putting money in a 529 plan for college or joint taxable account, they are treated the same as far as EFC is concerned. There is no FAFSA tax. Indeed, some joint taxable account money used for college is not taxed just as 529 plan money used for college is not taxed.

If the choice is putting money in a 529 plan for college or a 401(k) or IRA, then the 401(k) or IRA has an advantage as far as FAFSA is concerned.

In any event, a 529 plan is a mechanism for the wealthy and not really a mechanism for the poor or middle class.

Obviously 529 plans are not just for the wealthy. Anyone who can save anything could potentially consider a 529 plan if they have a beneficiary. It's absolutely for the middle class.

Anyway, I see from posters that there seems to be no special recognition of assets in younger siblings 529 plans. This is basically an anti-loophole. It assumes assets are all available for one child when they are actually to be split amongst all the children. In effect assets are counted once for each child.

FAFSA planning and tax planning are essentially Siamese twins that can't be separated. There are various marginal rates, and it does make sense to talk of FAFSA taxes, e.g. taxing assets at 5% per child per year, and taxing income at 35%-40%. But the `per child per year' part means assets can ultimately make a bigger contribution to EFC than income.

It's true that putting money into 401k/IRA/etc is better than 529 which is better than regular taxable. But it gets complicated. I have money in the bank which I could put into a 529, but in the future, if I don't earn enough to max out retirement accounts and cover living expenses, I would draw down that bank balance for expenses, effectively shifting that money from taxable to tax-sheltered. On the other hand, for FAFSA, quickly consumed assets may have less `FAFSA tax' than `income' realized by withdrawing from retirement accounts to cover living/college expenses (this includes Roth withdrawals).

A new question I just thought of. What's the effect on FAFSA when you take a 401k-type loan?

Anyway, FAFSA rules could change in many ways over the next 10 years, so it's hard to plan in detail.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby sscritic » Tue Mar 27, 2012 11:26 pm

555 wrote:Anyway, I see from posters that there seems to be no special recognition of assets in younger siblings 529 plans. This is basically an anti-loophole. It assumes assets are all available for one child when they are actually to be split amongst all the children. In effect assets are counted once for each child.

If you had two children and two 529s and the first child got into a really expensive school and the second dropped out of high school, you would change the beneficiary and use the money for the first. If your children were four or five years apart in age, you could even change before the first started college (but after the FAFSA was turned in), figuring you would have more time to save for the second. All your 529s are yours, and the colleges can't keep you from changing beneficiaries. You might not intend to, but you could, and the colleges don't want to spend the time and effort to read your mind.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby 555 » Wed Mar 28, 2012 12:00 am

sscritic wrote:
555 wrote:Anyway, I see from posters that there seems to be no special recognition of assets in younger siblings 529 plans. This is basically an anti-loophole. It assumes assets are all available for one child when they are actually to be split amongst all the children. In effect assets are counted once for each child.

If you had two children and two 529s and the first child got into a really expensive school and the second dropped out of high school, you would change the beneficiary and use the money for the first. If your children were four or five years apart in age, you could even change before the first started college (but after the FAFSA was turned in), figuring you would have more time to save for the second. All your 529s are yours, and the colleges can't keep you from changing beneficiaries. You might not intend to, but you could, and the colleges don't want to spend the time and effort to read your mind.

I recognize these things. You are arguing why the formula may be a certain way. That doesn't change the fact that the formula is unfair in the standard case where a person has multiple children, all of whom are college bound. It's basically irrelevant that you can switch 529s between them. The real issue is that the assets have to be split between them and this is not taken into account.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby sscritic » Wed Mar 28, 2012 12:03 am

555 wrote:I recognize these things. You are arguing why the formula may be a certain way. That doesn't change the fact that the formula is unfair in the standard case where a person has multiple children, all of whom are college bound. It's basically irrelevant that you can switch 529s between them. The real issue is that the assets have to be split between them and this is not taken into account.

I don't understand your use of the term "unfair." If you have $1 million in a taxable account and four children, they don't say that each child only has access to $250,000 because your intent is to share equally among your children. The 529 designation on the asset has nothing to do with it. You own it; it's yours.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby 555 » Wed Mar 28, 2012 1:00 am

sscritic wrote:
555 wrote:I recognize these things. You are arguing why the formula may be a certain way. That doesn't change the fact that the formula is unfair in the standard case where a person has multiple children, all of whom are college bound. It's basically irrelevant that you can switch 529s between them. The real issue is that the assets have to be split between them and this is not taken into account.

I don't understand your use of the term "unfair." If you have $1 million in a taxable account and four children, they don't say that each child only has access to $250,000 because your intent is to share equally among your children. The 529 designation on the asset has nothing to do with it. You own it; it's yours.

Then you must be missing the point. (And I'm not sure why you picked such huge numbers, but that is beside the point.)

If one family has n children and $nX in taxable (including 529) assets, then as all their children go to college they'll have a certain overall contribution to EFC over all those years due to their assets in each year. The exact amount will depend on the time scale and how the assets dwindle over the years.

Now suppose instead you have n families living in a street each with one child and each with $X in taxable (including 529) assets. They'll also have a certain overall contribution to EFC due to their assets in each year but just those in their own family, not those of all their neighbors. It would be outrageous if you had your EFC increased by 5% of all taxable assets of all the others in the street. But in effect that's exactly what's happening to the family with n kids.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby sscritic » Wed Mar 28, 2012 1:40 am

555 wrote:If one family has n children and $nX in taxable (including 529) assets, then as all their children go to college they'll have a certain overall contribution to EFC over all those years due to their assets in each year. The exact amount will depend on the time scale and how the assets dwindle over the years.

Now suppose instead you have n families living in a street each with one child and each with $X in taxable (including 529) assets. They'll also have a certain overall contribution to EFC due to their assets in each year but just those in their own family, not those of all their neighbors. It would be outrageous if you had your EFC increased by 5% of all taxable assets of all the others in the street. But in effect that's exactly what's happening to the family with n kids.

I am glad to see that you recognize that whether this is fair or not has nothing to do with the assets being in a 529. You started the thread asking, presumably because you didn't know, about 529s. As far as I can tell with a cursory glance back is that you have repeatedly talked about 529s. Now you know better. It always helps to think things through to clarify your thinking. I like to use analogies, or as in this case, similar but different objects (e.g., 529 and taxable account). I am still not sure that I would use the term unfair, but at least now we are talking about the same thing, the use of your assets to pay for multiple children to go to college.

The next step is to think about whether you were forced to have n children while your n neighbors each had one each. Also, you have been getting n extra exemption credits all these years for your n kids, while your neighbors have been taking only one each. Also, if yours is a two parent family and all the other families are single parent families, your asset protection is roughly 2/5 times theirs ($45,500 vs $17,900 for oldest parent age 44, 2010-2011). You are right, life is unfair.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby sscritic » Wed Mar 28, 2012 1:50 am

More on fair: You have 11 kids; the other 10 families each have 1. Each family is given exactly $50,000 in college aid. It is totally fair as each family gets exactly the same amount. You don't get more for having more kids and you don't get more for having fewer kids. Note: the fact that you get less the $5,000 per kid while the other families get $50,000 per kid doesn't make it unfair since all the families get the same total.

I guess it depends on how you define fair. Should fair be defined per family or per child? You will get different rules depending on which definition you take, which means any set of rules will be "unfair" for either large families or small families. There is no way to avoid being unfair.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby 555 » Wed Mar 28, 2012 2:03 am

sscritic wrote:More on fair: You have 11 kids; the other 10 families each have 1. Each family is given exactly $50,000 in college aid. It is totally fair as each family gets exactly the same amount. You don't get more for having more kids and you don't get more for having fewer kids. Note: the fact that you get less the $5,000 per kid while the other families get $50,000 per kid doesn't make it unfair since all the families get the same total.

I guess it depends on how you define fair. Should fair be defined per family or per child? You will get different rules depending on which definition you take, which means any set of rules will be "unfair" for either large families or small families. There is no way to avoid being unfair.

I don't know what you mean by being given `college aid'. It's really just a calculation of what they'll charge you.

Anyway, the original point is that the FAFSA asset tax can be greater than 100%. What do you do then?
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Re: FAFSA and younger siblings' 529 plan assets.

Postby joppy » Wed Mar 28, 2012 2:11 am

One "loophole" is to have the older sibling delay going to college until the younger sibling is ready. Or in the case of n children and nX dollars, have all the older siblings delay college college until the youngest sibling is ready to go to college. Then the expected family contribution (EFC) will be split amongst all the children going to college simultaneously.

Note: I am not recommending this course of action - just pointing out the loophole.

Note 2: This just describes how the FAFSA is supposed to calculate the EFC. The "CSS profile" administered by the College Board may calculate family contributions differently. (Does anyone know how?)

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Re: FAFSA and younger siblings' 529 plan assets.

Postby dickenjb » Wed Mar 28, 2012 7:40 am

To the OP: Parental assets are parental assets. Period. Retirement assets and home equity are not counted but you can't take "counted" assets and say, "But that was earmarked for _________".

To livesofts point about FAFSA being a waste of time - it is not. Most colleges won't consider you for MERIT aid unless you fill out FAFSA.

I filled out FAFSA and got an EFC of $99,999. I thought, waste of 20 minutes. Later my son was offered $4000 a year in merit money from one of the universities he applied to. He decided to go elsewhere but... had he accepted that offer that was $16,000 for 20 minutes of effort. I never made $48,000 an hour when I was working.

I have been told that the FAFSA acts as a flag to the schools that you are interested in aid. Without FAFSA, no aid (either need based or merit based).
Last edited by dickenjb on Wed Mar 28, 2012 8:25 am, edited 1 time in total.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby gatorking » Wed Mar 28, 2012 8:01 am

More kids means lower EFC anyway. Why should you get a double benefit?
Last edited by gatorking on Wed Mar 28, 2012 8:29 am, edited 1 time in total.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby vectorizer » Wed Mar 28, 2012 8:21 am

dickenjb wrote:I filled out FAFSA and got an EFC of $99,999 per child. I thought, waste of 20 minutes. Later my son was offered $4000 a year in merit money from one of the universities he applied to.

Similar experience here, laughable EFC from FASFA but my daughter was offered a few thousand a semester non-need-based aid, plus she takes the max Stafford loan. The school wants the FASFA for any aid, not just need-based aid. Altogether this knocked a third off the sticker price for me, so FASFA is worth it.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby Calhoon » Wed Mar 28, 2012 8:40 am

Is money taken out of a 401k or traditional IRA subject to a penalty ontop of having to claim it as income on your taxes? I know with an roth IRA this is a nonissue, but I would probalby wnat to keep the money in the ROTH IRA as long as possible.

I have two duaghters, ten and six, both of whom have abotu twenty-five thousnad each accumulated in 529 accounts. After readign this, I'm wondering if maybe it'd be better from here on out to allocate part of my future savings in retirement vehcicles for college as well. I am reachign the point in my life where I was actually thinking aobut saving less for retirement, so I would have room to put some money aside in these accouunt.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby 555 » Wed Mar 28, 2012 10:01 am

gatorking wrote:More kids means lower EFC anyway. Why should you get a double benefit?

The whole point of the thread from the beginning is that this is not true in general. It's only true if they are in college at the same time.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby 555 » Wed Mar 28, 2012 10:15 am

Calhoon wrote:Is money taken out of a 401k or traditional IRA subject to a penalty ontop of having to claim it as income on your taxes? I know with an roth IRA this is a nonissue, but I would probalby wnat to keep the money in the ROTH IRA as long as possible.

I have two duaghters, ten and six, both of whom have abotu twenty-five thousnad each accumulated in 529 accounts. After readign this, I'm wondering if maybe it'd be better from here on out to allocate part of my future savings in retirement vehcicles for college as well. I am reachign the point in my life where I was actually thinking aobut saving less for retirement, so I would have room to put some money aside in these accouunt.

There's no penalty for withdrawing from retirement accounts if you are old enough. Any income tax is would you'd've paid anyway. Also if you're not old enough to withdraw from retirement accounts when you kids are in college, you could take a loan and withdraw from retirement accounts when you can penalty free. This is assuming that you have enough retirement savings and have earmarked some money in retirement accounts for kids college.

One big issue is that retirement withdrawals would be viewed as income for FAFSA purposes (even if from a Roth IRA). I haven't figured out the best approach yet.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby HardKnocker » Wed Mar 28, 2012 10:33 am

livesoft wrote:^ It was a complete and total waste of time. And we should've known better before we even started.


I hate divulging personal financial information.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby Auream » Wed Mar 28, 2012 11:18 am

Sounds like the best "financial aid strategy" is to stuff all savings into retirement accounts and paying down home equity. For some bogleheads this might still not be enough space, but the vast majority of the country is not maxing out all retirement accounts (17K his 401(k), 17K her 401(k), and 5K each in roths). Edit: oh yeah, and max out an HSA, another $6150/year. Just save all your medical receipts and pay them out of pocket. No money in taxable or in 529 accounts. Then when the kids hit college age, max out on loans to pay for it.

Then once the kid hits his last year of college, you can withdraw from the Roth or HSA, take a 401(k) loan, get a home equity loan, etc. and pay whatever you were originally planning on putting towards college (i.e. pay off loans taken out in previous years, or just pay the last year's tuition in full, etc.)

Sounds like only "rich people" (i.e. those who can easily max out their retirement accounts and don't have a mortgage) really benefit from 529s.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby donall » Wed Mar 28, 2012 12:44 pm

"I have been told that the FAFSA acts as a flag to the schools that you are interested in aid. Without FAFSA, no aid (either need based or merit based)."

I've also heard that, but did not complete the FAFSA forms after doing estimates, yet both kids got merit scholarships.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby gatorking » Wed Mar 28, 2012 8:50 pm

555 wrote:
gatorking wrote:More kids means lower EFC anyway. Why should you get a double benefit?

The whole point of the thread from the beginning is that this is not true in general. It's only true if they are in college at the same time.


From this site: http://www.thecollegesolution.com/an-em ... sioned-mom
"The PROFILE gives you credit for the number of children who are still dependents. You won’t get penalized if you space your kids farther apart, but you also don’t get as big a drop on your EFC per child."
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Re: FAFSA and younger siblings' 529 plan assets.

Postby milestogo » Wed Mar 28, 2012 11:20 pm

I had 2 kids get merit based scholarships based mainly on ACT scores but did not fill out anything. I knew we would never qualify for anything. Merit is really about performance or extracurricular achievement it seems.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby 555 » Thu Mar 29, 2012 11:48 am

gatorking wrote:
555 wrote:
gatorking wrote:More kids means lower EFC anyway. Why should you get a double benefit?

The whole point of the thread from the beginning is that this is not true in general. It's only true if they are in college at the same time.

From this site: http://www.thecollegesolution.com/an-em ... sioned-mom
"The PROFILE gives you credit for the number of children who are still dependents. You won’t get penalized if you space your kids farther apart, but you also don’t get as big a drop on your EFC per child."

Okay, I followed the link (that's an informative blog) and played with an aid estimation calculator for an elite university. (I couldn't find CSS/Financial Aid PROFILE calculator. I only just heard of it now.) I also checked an simple FAFSA calculator http://www.finaid.org/calculators/scripts/quickefc.cgi
The results were somewhat similar for the two.

So it is true that there is a reduction for extra children at home, about $1k to $1.5k reduction in EFC per extra child.

But the reduction for extra children in university is much more significant, almost dividing EFC per child by n, for n children in university, actually I found that (all other things being equal) the EFC per child looked like A+(B/n) or (nA)+B overall, and B>>A.

So there is a reduction for extra children at home, but it is much less significant than the reduction for extra children in university.

It seems they take into account that you need to feed and house the younger siblings, but not that they will have college expenses in the future too. The formulas are all about how much you can pay now.

Anyway, I'm sure they'll tweak the formulas over the years, but this feature probably won't change, so now I know.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby livesoft » Thu Mar 29, 2012 12:36 pm

So it's fair to say that parents should spend all their money on the first child going to college, so that they get financial aid for the younger kids.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby bungalow10 » Thu Mar 29, 2012 12:44 pm

livesoft wrote:So it's fair to say that parents should spend all their money on the first child going to college, so that they get financial aid for the younger kids.


When I went to college, I qualified for a tiny amount of subsidized loans because my parents also had another child in the house.

When my younger brother went to college, there were no subsidized loans for him, presumably (at least what my parents said) he was the only dependent.

I've never filled the form out myself, so I don't know how accurate this is. However, if it is accurate and you had a large number of children, the oldest could benefit from being one of many dependents, while the youngest would be one of very few dependents.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby bungalow10 » Thu Mar 29, 2012 12:48 pm

555 wrote:
sscritic wrote:
555 wrote:Anyway, I see from posters that there seems to be no special recognition of assets in younger siblings 529 plans. This is basically an anti-loophole. It assumes assets are all available for one child when they are actually to be split amongst all the children. In effect assets are counted once for each child.

If you had two children and two 529s and the first child got into a really expensive school and the second dropped out of high school, you would change the beneficiary and use the money for the first. If your children were four or five years apart in age, you could even change before the first started college (but after the FAFSA was turned in), figuring you would have more time to save for the second. All your 529s are yours, and the colleges can't keep you from changing beneficiaries. You might not intend to, but you could, and the colleges don't want to spend the time and effort to read your mind.

I recognize these things. You are arguing why the formula may be a certain way. That doesn't change the fact that the formula is unfair in the standard case where a person has multiple children, all of whom are college bound. It's basically irrelevant that you can switch 529s between them. The real issue is that the assets have to be split between them and this is not taken into account.


Life isn't fair. If mom and dad have $500,000 cash in the bank but choose to let junior pay for his own college, then junior will have to find a way to pay for his own college. No matter how you count or divide the assets, it is still the parents' responsibility (and right) to divide them as they deem appropriate.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby Grt2bOutdoors » Thu Mar 29, 2012 12:56 pm

Go to the best,least expensive college or university - save your money for graduate school.
I expect at sometime this game of jacking tuition is all going to come to a halt - student loan debt is the next and current equivalent of the housing bubble. Let's see, we are 20 years into it, so in about another 10 years, when the average cost of college is 75K per year it will all come crashing down.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby 555 » Thu Mar 29, 2012 1:37 pm

bungalow10 wrote: If mom and dad have $500,000 cash in the bank....
Why do people keep coming up with these gigantic numbers? :confused What's the point? It has little relevance to the discussion at hand.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby bungalow10 » Thu Mar 29, 2012 1:42 pm

555 wrote:
bungalow10 wrote: If mom and dad have $500,000 cash in the bank....
Why do people keep coming up with these gigantic numbers? :confused What's the point? It has little relevance to the discussion at hand.


It is relevant if you read the entire sentence and stop getting hung up on the fact that we can't quote your bank balance to the penny.

The parents decide which child (if any) gets money for college, not the government or some board of college financial aid people.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby 555 » Thu Mar 29, 2012 1:50 pm

livesoft wrote:So it's fair to say that parents should spend all their money on the first child going to college, so that they get financial aid for the younger kids.
It's clear that this is what to do based on how the formulas work. That's why I asked the question in the OP, to see if the formula really is such that you should do it this way.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby Joe529 » Thu Mar 29, 2012 3:16 pm

To remove the sibling 529 accounts from the FAFSA you can simply convert it from a parent-owned 529 to a custodial/UTMA 529 (in most 529 plans). This should reduce the older student's EFC while not changing the 529's impact on the younger sibling's EFC when he/she gets to college. The downside of a UTMA 529 is that the parent no longer has ownership rights, the beneficiary on the account can no longer be changed, and the minor receives direct ownership when the custodianship terminates at the age of majority.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby Mel Lindauer » Thu Mar 29, 2012 4:01 pm

Joe529 wrote:To remove the sibling 529 accounts from the FAFSA you can simply convert it from a parent-owned 529 to a custodial/UTMA 529 (in most 529 plans). This should reduce the older student's EFC while not changing the 529's impact on the younger sibling's EFC when he/she gets to college. The downside of a UTMA 529 is that the parent no longer has ownership rights, the beneficiary on the account can no longer be changed, and the minor receives direct ownership when the custodianship terminates at the age of majority.


Thanks for stopping by, Joe. (For those who don't know, that response was from Joe Hurley, proprietor of Savingforcollege.com, so you heard if from one of the best!)
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Re: FAFSA and younger siblings' 529 plan assets.

Postby livesoft » Thu Mar 29, 2012 4:21 pm

But is not a student-owned UTMA 529 plan earmarked essentially 100% for college (20% a year), while a parent-owed 529 plan is only earmarked 5.64% for college?

Yes, the rules for FAFSA are 5.64%, but colleges do not have to follow those rules and know the money is there. :)
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby 555 » Thu Mar 29, 2012 4:59 pm

Joe529 wrote:To remove the sibling 529 accounts from the FAFSA you can simply convert it from a parent-owned 529 to a custodial/UTMA 529 (in most 529 plans). This should reduce the older student's EFC while not changing the 529's impact on the younger sibling's EFC when he/she gets to college. The downside of a UTMA 529 is that the parent no longer has ownership rights, the beneficiary on the account can no longer be changed, and the minor receives direct ownership when the custodianship terminates at the age of majority.

Thanks for this lead. I just googled my way to this page
http://www.savingforcollege.com/article ... mautma-529
which seems to be about what you were saying. My concern about these various savings vehicles is you could set up a plan, and then a change in rules and formulas could mess it up.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby voday » Fri Mar 30, 2012 10:53 am

livesoft - actually, a student-owned account in a 529 is assessed at the lower parent rate by the FAFSA, but it is assessed at the higher student rate by the PROFILE. This is 25% for the PROFILE vs. 5.x% for the FAFSA.

In general, I think people get too wrapped up in how assets figure into the computation of Expected Family Contribution. Income has a far greater impact, even for very middle-income families.

Also - if you've saved in 529 accounts, even for multiple siblings, that's presumably all meant for education. The formula says you're only expected to spend 5.x% of the total each year. It would take a lot of children in the family to turn that into a problem. Over four years, for each kid that's 20-25% of the total over four years. It is a diminishing total, but there should be earnings along the way to help out.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby letsgobobby » Thu Apr 12, 2012 2:51 pm

There is no FAFSA tax really and it's hyperbolic to claim there is. If you're not going to be eligible for financial aid no matter what, then 529s are the best thing since sliced bread.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby 555 » Thu Apr 12, 2012 3:29 pm

FAFSA planning is inseparable from tax planning. And the formula has marginal rates on income and assets, just like taxes, so it's almost nitpicking not to call it FAFSA tax. The very poor and very rich are effectively in 0% brackets, but for those of us in between, the marginal rates are very steep, and careful planning is called for.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby interplanetjanet » Thu Apr 12, 2012 6:22 pm

555 wrote:FAFSA planning is inseparable from tax planning. And the formula has marginal rates on income and assets, just like taxes, so it's almost nitpicking not to call it FAFSA tax. The very poor and very rich are effectively in 0% brackets, but for those of us in between, the marginal rates are very steep, and careful planning is called for.

Not to sidetrack things, but it's worth noting that there are very steep changes in eligibility for financial aid depending on a number of small lifestyle adjustments. My ex is a grad student with low income and right now we split child custody almost equally. As things stand, there is a tremendous incentive for us to have the children spend at least one more night with him than me per year in the last year or two before college, which parent is determined to be primary will make the difference between an extremely low EFC and one that's so high that no aid will be forthcoming.

Is this gaming the system? It's really hard for me to say. It is a situation that only a former couple with almost equal custody who were on good terms with each other could exploit, I think.

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Re: FAFSA and younger siblings' 529 plan assets.

Postby 555 » Thu Apr 12, 2012 6:31 pm

interplanetjanet wrote:
555 wrote:FAFSA planning is inseparable from tax planning. And the formula has marginal rates on income and assets, just like taxes, so it's almost nitpicking not to call it FAFSA tax. The very poor and very rich are effectively in 0% brackets, but for those of us in between, the marginal rates are very steep, and careful planning is called for.

Not to sidetrack things, but it's worth noting that there are very steep changes in eligibility for financial aid depending on a number of small lifestyle adjustments. My ex is a grad student with low income and right now we split child custody almost equally. As things stand, there is a tremendous incentive for us to have the children spend at least one more night with him than me per year in the last year or two before college, which parent is determined to be primary will make the difference between an extremely low EFC and one that's so high that no aid will be forthcoming.
Is this gaming the system? It's really hard for me to say. It is a situation that only a former couple with almost equal custody who were on good terms with each other could exploit, I think.
-janet

Wow. What a great example of the need for planning, and what a huge jump discontinuity in the formula.
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Re: FAFSA and younger siblings' 529 plan assets.

Postby interplanetjanet » Thu Apr 12, 2012 7:06 pm

555 wrote:Wow. What a great example of the need for planning, and what a huge jump discontinuity in the formula.

It's worth noting that this does not occur (at least, not to the same degree) with financial aid qualified for through the CSS/Profile questionnaire (usually used by private schools), which requires financial information from all parents. Thankfully there are a selection of excellent state Universities here that use the FAFSA that I have started to recommend to my children. Interestingly enough it appears that things work out better if I continue to pay child support to my ex and he puts it towards their tuition than if I terminate CS at 18 and then pay for their college directly - the EFC benefit is significant (I'm phased out of the educational credits/deductions as a single filer, so paying the tuition directly doesn't help me tax-wise).

Edit: can anyone recommend a good Excel-based (or similar) EFC calculator? Not online, I want to tear apart the formulas.

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Re: FAFSA and younger siblings' 529 plan assets.

Postby 555 » Thu Apr 12, 2012 8:41 pm

interplanetjanet wrote:
555 wrote:Wow. What a great example of the need for planning, and what a huge jump discontinuity in the formula.

It's worth noting that this does not occur (at least, not to the same degree) with financial aid qualified for through the CSS/Profile questionnaire (usually used by private schools), which requires financial information from all parents. Thankfully there are a selection of excellent state Universities here that use the FAFSA that I have started to recommend to my children. Interestingly enough it appears that things work out better if I continue to pay child support to my ex and he puts it towards their tuition than if I terminate CS at 18 and then pay for their college directly - the EFC benefit is significant (I'm phased out of the educational credits/deductions as a single filer, so paying the tuition directly doesn't help me tax-wise).

Edit: can anyone recommend a good Excel-based (or similar) EFC calculator? Not online, I want to tear apart the formulas.

-janet


This may be useful, though haven't really looked through it.
http://ifap.ed.gov/efcformulaguide/0105 ... e1213.html
last link is
http://ifap.ed.gov/efcformulaguide/atta ... de1213.pdf [36 page pdf]
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