Already filed FAFSA, then discovered UGMA account: How to deal with it?

[BelknapPoint]

Earlier this year, our second child, who’ll start college this fall, completed his FAFSA. Just as with his sister, he received an EFC of 0, due to our large family (5 kids) and low income. However, as we were working to complete a CSS profile for him, we discovered an issue I believe we must also address with his FAFSA.

It turns out his grandfather set up a UGMA stock account for him some years back. Since his grandfather is the custodian, we forgot to include it when filling out the FAFSA. It’s not a tremendous amount of money – about 7K (6K stock, 1K money market) – but I believe we need to include it on both FAFSA and CSS.

Yes, now that you know about/remember the UGMA account, it needs to be reported on financial aid forms as a student asset.

Or, perhaps, dispose of/transition the UGMA account in some way that will have less negative impact on his ability to qualify for financial aid? From the research I’ve done since discovering the issue yesterday, it seems moving the funds into a parent or grandparent owned 529 might be a good option. If there are other good options, I’m all ears!

You can’t move the funds into a parent or grandparent owned 529 because the funds aren’t owned by a parent or grandparent; they are owned by your child. What you could do to lessen the financial aid hit is to move the funds to a UGMA/custodial 529 account which would be legally owned by the child/student but would be reported on FAFSA as a parent asset, and might be considered a parent asset on CSS/Profile, depending on each Profile school’s own FA policy.

For further context, the same grandparents established a 529 (which they own) for our oldest child, and she has taken a few small distributions from it in her nearly three years of college. Happily, other aid and FWS has mostly covered her expenses. With that said, since we ended up having 5 children, it was always our plan to equally share the 529 funds (on an as-needed basis) among them. Right now, our daughter remains the sold beneficiary, but we were planning to change that soon in anticipation of our son’s entrance to college this fall. Prior research led me to believe their grandparents can roll desired amounts from the existing 529 plan into separate 529 plans for each child.

Is that basically correct?

Yes, within the relevant IRS regulations and the 529 administrator’s program rules.

If we were to undertake such transfers, it would be desirable to reduce our son’s share by the amount of the UGMA account (which could, presumably, be added to his soon-to-be-established 529 plan) so that each child ended up receiving an equivalent amount of college funding from their grandparents. Anyone see a problem with that? Or with any of what I’ve laid out so far?

With different investment vehicles and different timing, it will be next to impossible to provide an equal amount to each child, but you can probably get close.

Also - importantly - could these moves (which we could make expiditiously) be reflected sufficiently by revising our son’s FAFSA? This would be done well ahead of the June 30 deadline. If a problem, how should we deal with getting him squared away in terms of full reporting of his assets? Seems we can’t really proceed with the CSS until we’ve sorted out the FAFSA.

You should make any needed changes to FAFSA and Profile ASAP, but realize that these changes will probably delay accurate need-based FA offers from schools that are providing them. If making a school choice depends in part on FA offers, this might be a problem.