<p>Each of my kids is about to get a lump sum disbursement of $12K from Social Security due to their dad’s disability. DS is now 18 and a freshman in college. DD is 13 and will be starting college in 5 years. DD will continue to get about 6K per year in additional benefits until she reaches 18.</p>
<p>I think I would like to put DDs money into a 529 account. We live in NY and there is a state income tax deduction for contributions of up to $5K. If I understand it correctly, DD’s account would be owned by us for tax purposes but she would be the beneficiary. I am not sure if we will need to file a tax return for her because I think most if not all of the SS income will be exempt from taxes (obviously I will consult my CPA).</p>
<p>Question for all you financial aid gurus - what kind of effect will DSs $12K have on financial aid for next year? He goes to RPI, which uses Profile for freshmen, but only uses FAFSA for upperclassmen.</p>
<p>Since he has no other income this year, I think he will have little or no tax to pay since I think most of it will be exempt on the 1040.
If it’s counted as unearned income by FAFSA, he’ll be assessed at 50%. However if it’s not, I assume it will still be counted as an asset, and he’ll be assessed at 20%.
Would there be any benefit in putting it into a 529 plan? If so, who would be the owners of the account? I’m assuming that since he’s no longer a minor he would be the owner.</p>
<p>Although not specifically addressed in the regulations, it appears that the untaxed portions of SSDI would not be reported as untaxed income since the regs state the “untaxed portion of social security benefits” are not reported on FAFSA & SSDI is a social security benefit. So any untaxed SSDI for 2010 would not be reported on the FAFSA (would need to be reported on Profile, I think). The kicker is that any assets in the student’s name ARE heavily assessed in the formula. I think it would be wise to consider ways to minimize the impact of saving that money. Paying for College Without Going Broke is a good resource for this … and I am sure that some of our CC friends will have good ideas. If your S plans to make purchases for school (such as a computer), it might be a good idea to do this prior to completing the financial aid forms.</p>
<p>Thanks, I actually just pre-ordered two copies of the book from Amazon (one for DD’s friend’s mom). I was hoping it might have some helpful information.
DS actually has two laptops already (one a Christmas present from us and one given to him as part of his scholarship by RPI), but we can certainly look for other possible things to purchase that he might need anyway.</p>
<p>Even though your son is 18, you can still have a 529 account for him with you (or other parent) as the owner, and son as the beneficiary. It’s VERY worthwhile to funnel money through a 529 in order to get the state income tax deduction!</p>
<p>This way the amount in the account would be a parental asset, assessed at 5.6%.
IIRC, even 529s in the kid’s name are still assessed at the parental rate (for the past couple of years) – but your son likely will owe little if any state income tax, so it would seem to be best for one of the parents to be the owner of the 529.</p>
<p>Looking at the web site for NY’s 529 plan <a href=“https://uii.nysaves.s.upromise.com/content/programfeatures.html[/url]”>https://uii.nysaves.s.upromise.com/content/programfeatures.html</a>
it looks like a married couple filing jointly can deduct up to $10,000 per year in 529 contributions from their state income tax.
Since we’re near the end of the year, I think I would put at least $10K in for 2010, then the rest in 2011 (you might want to keep some out for non-college expenses, though).
The 2010 amount could be all for your son (and you could use some of it to pay winter semester college bills if you do it before the end of the year, depending on your state rules. In our state and at least some others, the funds only have to be in the account for 10 business days before a withdrawal (distribution) can be made.), or you could divide it up between the 2 kids however you choose.</p>
<p>sk8rmom makes a good point which pertains to ALL financial aid applicants – pay those tuition bills, other big bills, and in fact all monthly bills BEFORE you file the financial aid forms. For schools on the quarter system, when your kid is a “returning student” and the forms aren’t due until April or so, pay the spring quarter bills before filing.
Our bank balance is a whole lot higher at the beginning at the month than it is at the end! I file the forms right at the end of the month, to minimize the “checking/savings/cash-on-hand” line on the forms. Every little bit helps! (of course, if kid is not at a meets-full-need school, it wouldn’t really make any difference)</p>
<p>Ditto what MomCat2 has said. In fact, the student may be able to hit the bookstore and buy up the books needed for next semester – and get those winter boots and pay that Visa balance, all before penciling in the “cash on hand” line.</p>