Are there any cons to transferring money from teen savings a few 10k’s into parent owned 529 where they are the beneficiary? Any tax consequences or negative view by the college when they applies this Fall. I can’t afford financial consultant right now.
Are you talking about taking student-owned money and putting the dollars in a parent-owned account? Yeah, you shouldn’t do that.
Why would you transfer student owned money to a parent owned 529? I can’t think of any good reason.
I guess the thinking is that student assets are assessed at a much higher rate…but the solution would appear to be putting it in a custodial student-owned 529.
If the money is to be used for college…so be it. Use it for college. It’s 20% a year…not 100%.
@BelknapPoint how much can this KID decide to put in his own 529 in one year. Is there a limit?
The downside to a student owned 529 is that the money is supposed to be used for qualified expenses. What if the kid wants to use some of it for a car for an internship, or for side trips during a study abroad?
If this student does receive significant aid, then the benefit of being assessed at 5% rather than 20% will far outweigh any penalty assessed on earnings only (over what will only be 2-5 years, since this is a rising senior) if the student makes non-qualified withdrawals. And the penalty will be waived if the student is receiving more aid from their college than the amount of the non-qualified withdrawal anyway.
The more important question is whether this student will get into and attend a college which meets sufficient need for this to make a difference in financial aid.
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And we also don’t know the rest of the family finances. It’s very possible that this student doesn’t qualify for need based aid…or much need based aid.
Very often, families do financial gymnastics that don’t actually net the student additional need based aid.
If the kid’s colleges do not guarantee to meet full need, all this moving around of money could be for nothing.
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Yeah, I don’t want to get into too much actual advice without a much more full financial picture. But at least in my normal financial planning circles, a custodial 529 is a sort of known way to “shelter” student assets from a higher need aid assessment rate (or possibly any–see that bit about sibling 529s, but that is an even more complicated topic) at FAFSA schools. Of course CSS Profile colleges are not bound to do it that way, but it is definitely worth at least knowing about.
The only limit is what each 529 plan decides can be the maximum overall total account balance before no more contributions can be made, which is typically hundreds of thousands of dollars.
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Right, but OP is not talking about a custodial (student-owned) 529 account here. If that was being contemplated, it wouldn’t be a problem, as long as the student was ok with their own money from a regular savings account being used to fund a custodial 529 account. And some Profile schools may consider custodial 529s to be a student asset (compared to the FAFSA treatment of these accounts as a parent asset), so from a need-based financial aid perspective, it may not make any difference.
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Maybe. But it probably won’t make the situation worse than the student’s assets being in a regular savings account. From the student’s perspective, then to maximize financial aid I would look first at Roth IRA contributions (if there’s earned income) then secondly at a custodial 529.
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Absolutely, and I didn’t intend to suggest a custodial 529 was necessarily a good idea for the OP–that really depends on the circumstances, the college, and so on.
Incidentally, I have been thinking about the original question, and holding aside the 529 issue, is there any particular reason the kid could not gift up to the gift tax limit to a parent? And possibly more than one parent each. The parents could then put it into a 529 or not depending on whether that made sense.
@BelknapPoint other than the amount of earned income…are there limits on the amount one can contribute to a Roth IRA in one year.
I think the biggest thing here is that this money belongs to the student. Does this parent plan to convince the student to move the money. Really in fact, the kid could say…no.
And if the parents otherwise wouldn’t qualify for need based aid, or much need based aid….all of this financial gymnastics could be a huge waste of time.
I forget- does the profile have a look back like FAFSA does?
The profile also uses prior prior tax return information. BUT in the case of assets, those are reported as of the day of filing the FAFSA or Profile forms. No “prior prior” on assets.
Yeah, before even considering any of this, I would think you would want to run two versions of relevant NPCs, one with the funds as a student asset, one as a parental asset.
If it doesn’t make any difference (and it very well might not), project over.
But if it does, and it is substantial, then you could look at options for making that happen.
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Yes, there are modified AGI limits subject to a phaseout, and even if income allows the max annual contribution for 2024 is $7,000, with an extra $1,000 “catch-up” added for those age 50 and over.
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The student could choose to make gifts to parents, but I would think that financial aid officers (and most other people, too) would look at this with a skeptical eye, wondering if the student was being pressured and fully understood that they were permanently giving up control of their own money.
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