I have been interning for the last few summers and have accumulated ~40k in cash. I am on significant financial aid (at a private school that uses the CSS profile + FAFSA), and want to save the internship money in a way where I don’t lose a lot of it (I have 3 years of school left).
I was considering either:
- Adding the money to my parents’ portfolio
- Opening a portfolio in my name
Which would be the better option in terms of maximizing financial aid? Is there anywhere else I can place the money for better tax savings/more financial aid? Thanks!
Do you want to be honest or dishonest?
I don’t want to do anything in violation of the law.
Third option: Send it to me (tee! hee!). With a son heading to VaTech as an out-of-stater, I will probably be living under a bridge for the next 4 years…
If only you had brought up this concern three weeks ago! I would recommend opening a Roth IRA and investing up to the maximum allowed by the IRS (~$5,500 I think); if you had done that three weeks ago, before the tax deadline, you would’ve been able to contribute an extra $5,500 for last year. Retirement accounts are not considered at all in financial aid awards.
Beyond that, up to 20% of the value of your assets will be considered each year, and up to 50% of your income will be considered, so if you have $35k in the bank, your school could feasibly call on you to pay an extra $7,000. If you use a 529 plan, however, only a max of 5.6% will be considered ($7,000 drops to ~$2,000). If you trust your grandparents, you could put your remaining money in a 529 plan that they own, which will result in zero impact to your financial aid eligibility or calculations, though any earnings you accrue would be subject to tax and penalty if you withdraw it for a nonqualified expense (i.e. not school); important to note is that only earnings are subject to tax/penalty, so it may actually be worthwhile to consider that.
Really, you should talk to a financial advisor, who will be able to guide you in the right direction. This is a complex topic that deserves more thoughtful attention to your particular situation.
Wow, that is very helpful, thanks so much!
Oh, one other thing … if you do invest $5,500 in a Roth IRA and let it sit there until you retire in, say, 46 years, if you average just 6% annual return, your $5,500 could be worth $80,000, which you can withdraw tax-free. Double win!