Retirement & Financial Planning Report

The formula for college financial aid includes family assets. The more assets you have, the less aid you’ll receive. However, all assets are not treated the same:

* Assets in the parents’ name are assessed at 5.64%.

* Assets in the student’s name are assessed at 20%.

If a student has $10,000 in the bank, for example, aid will be reduced by $2,000 (20% of $10,000). If that same $10,000 is in a parent’s bank account, aid will be reduced by only $564 (5.64%).

Therefore, if you have been saving money in a child’s custodial account under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA), you may be reducing your family’s chances for college aid. If so, one way to boost your college aid potential is to transfer the UGMA or UTMA account to a 529 college savings plan. The college aid formula treats 529 plans as parents’ assets, assessed at 5.64%.

To do so, you must set up a custodial 529 college savings plan account, not a regular 529 plan account, and use the same title for the custodial 529 account as the title on the UGMA or UTMA account. Even though a custodial 529 account is treated as a 529 plan, for college aid, its is still a custodial account that will belong to the child when he or she becomes an adult under state law.