Where do we park the $10,000 till she needs it? My high school junior won a competition that came with two $5,000 scholarships. We have the checks and they are made out to her what do we do with them until she needs them in 15 months?
You could start a 529 account with them.
First, congrats to your daughter.
The answer to your question may depend on a lot of factors, like where she may be considering applying, what is your family financial situation, etc.
If you are planning to file for needs-based aid at full-needs met schools, then you may want to check the terms that came with this scholarship. Is it for tuition only? Or can it be used for other educational expenses - like perhaps room and board, or a computer, or towards a car needed for transportation to a commuter school?
If you probably will qualify for need-based aid, it may make sense for her to spend some of this, if she can, before she applies for financial aid.
There are lots of other potential restrictions - I hope this isn’t a scholarship that applies only toward tuition at a for-profit school.
Keep in mind tax considerations.
@Madison85 what tax consequences would this student best if this scholarship money is used for qualified educational expenses?
I’m no expert…but if this money will be absolutely used for college…I think I would at least consider a 529.
@BelknapPoint your thoughts?
I think it is taxable unearned income in 2018 (the year received). It might even be best to claim it in 2018 as it is a non-college year, she can use up her standard deduction, and owe no taxes on it. then when she uses it in 2019, it is not taxable, just an asset.
As an asset, it might make a smaller impact on EFC if placed in a student owned 529.
A student-owned 529 (UTMA/custodian account if established while the student is a minor) might be a good place to stash the scholarship money, if the intent is to use it for education purposes.
Tax considerations: in my opinion there’s a good chance that the IRS will consider it taxable income, based on the status of the recipient and any conditions attached to the award. See Internal Revenue Code section 117, and/or talk with a tax professional.