Many parents hold bank or investment accounts for their children in custodial accounts established under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). Such assets are considered student assets so 20 percent of the total is expected to be paid for college each year. If your son has $30,000, for example, the federal financial aid formula calls for $6,000 (20 percent) to be spent on college costs.
One strategy is to liquidate your child’s bank or brokerage account, then invest the cash in a 529 college savings plan. Every state has such a plan, which can provide tax-free investment accounts and tax-free withdrawals for higher education.
Such a move can make sense because these 529 plans are considered a parent’s asset for financial aid. Only 5.64 percent will be expected to be spent for college: $1,692 out of $30,000. Thus, such a move may result in thousands of dollars in increased financial aid.
