What are the best savings strategies for college? What is a 529 Plan?
It is a savings vehicle for college related expenses. One that allows money to grow tax free, when used for qualified higher education expenses.
In the College Cost Reduction and Access Act of 2007 , the Federal Government said that 529 plans will be considered ?Parent Assets? when filing for financial aid.
??A qualified education benefit shall be considered an asset of?the parent if the student is a dependent student, regardless of whether the owner of the account is the student or the parent.?
But do all colleges follow the federal guidelines?
No, they do not.?
Shocking, isn?t it?
Some colleges will treat ?regular? 529 Plans one way, and 529 UTMA Plans a different way.
Why? Because they can.
529 Plans owned by the student
According to Savingforcollege.com, beginning with the 2009-2010 school year, student- and UGMA/UTMA-owned 529 accounts are to be reported as parental assets, if the student files the FAFSA as a dependent and has to include parent assets and income. This treatment confers a financial aid benefit as the parental rate of 5.64% is considerably less prejudicial than the 20% rate on non-529 assets owned by the student.
Now, this is what the Federal Guidelines demand.
For our clients, we ALWAYS recommend that the federal guidelines be followed on the CSS Profile. That means, UTMA/UGMA 529?s are reported as parent assets.
If colleges take a position contrary to this, we submit the profile in two versions. One simply lists the 529 in the parent section. Period. The second version, which by the way is created by adding new colleges, lists the asset in the parent section, but we reference the line item in Section ES as follows:? This is a section 529 savings plan held within a custodial account. It is reported as a parent asset in order to comply with federal regulations. If your institution chooses to treat this as a student asset, please contact us.
Then the fun conversation begins! Colleges that try to have families list 529 UTMA accounts in the student asset section, are looking to asses 20-25% of their value in the financial aid formulas. However, if the 529 accounts are listed in the parent asset section, as the federal guidelines state, then the maximum assessment will only be 5.64%? usually much less than that.
Parents and students were afforded this savings vehicle in 1996 and they should make sure they take the proper position and stand tall and make the ?colleges that behave badly? understand that the family is following the law of the land when filing all 529 plans as a parent asset.
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