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Lane
Lane, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3718
Experience:  Providing Financial & Tax advice since 1986
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Half the college savings for two sons are in UGMA and Custodial

Resolved Question:

Half the college savings for two sons are in UGMA and Custodial accounts, the other half in 529 plans - $80k total). Our older son owns the lion's share, and is halfway through his sophomore year. How do we position things for the most financial aid?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Customer:

Hi, well you've done a lot of what CAN be done... weighting things more in the children's name than yours (as much as possible)

Customer:

Another thing is to spend money on things for school, sooner rather than later, so that those assets don't show up at all

Customer:

Excuse me .... I said that backwards .... the more in YOUR names the better

Customer:

But again, usiong the 529 and Coverdell's have helped (that was the thought)

Customer:

Not unrelated to that first corrected statement, Spend down the student's assets and income first.

Customer:

Accelerate necessary expenses, to reduce available cash. For example, if you need a new car or computer, buy it before you file the FAFSA.

Customer:

If your family's financial circumstances are unusual in any way, make an appointment with the financial aid officer at the school to go over your situation. Sometimes the school will be able to adjust your financial aid package to compensate using a process known as "PROFESSIONAL JUDGEMENT."

Customer:

Having the financial aid folks on your side is huge

Customer : Hi, reading your reply now...
Customer:

Minimize capital gains, they pick that up from the form and tax returns

Customer:

OK just trying to list some gthings

Customer:

Whatever you do DON'T withdraw money from your retirement plans to pay for school, because distributions from qualified plans count as ordinary taxable income, reducing next year's financial aid eligibility. If have to access that money, BORROW the money from the retirement plan, ... instead of getting that taxable distribution.

Customer:

Minimize educational debt, as much as possible ... that's a direct offset to EFC (your Expected Family Contribution) ...raises it

Customer : Minimize capital gains?
Customer:

If grandparents or others want to help, ask them to wait until the grandchild graduates before giving them money to help with their education.

Customer:

Yes they pick up capital gains from your schedule D.... so if you can put off selling something fpr a gain until a later year do so (for THIS purpose)

Customer:

Here's an idea, prepay your mortgage, take the ,money from cash an puts it into home equity, which isn't looked at

Customer:

Don't know your children's situation, but the date to submit the FAFSA carefully, as assets and student marital status are specified as of the application date. So be aware of that "AS OF" date ... for all kinds of reasons, mostley because that's the date of the financial snapshot

Customer : Ok. Now you said Coverdell it was custodian. So if we take the money out if his UTMA and UGMA can we put it in the 529s which are in our names, and only get hit with 5.6% on FASFA? I expect we'll have to fill out taxes for him showing gains, he's sill in high school , His brothers and eighth-grade
Customer:

The most obvious, however, if you have on starting next year, and havn't completed the FAFSA fo that child SPEND everything you were going to anyway now .... Car, computer, etc

Customer:

Ok, yes, you have it the impact of the 529 is minimal

Customer:

OIC I though maybe one wast starting right away

Customer:

Do be aware and try not to manifest any gains that you can defer the year before starting

Customer : He's a sophomore , I heard we need to get money out of his name by Jan 1 of junior year through Dec of Senior year. So this spring and summer we would withdraw and close his custod/UGMA mutual funds and Stock. That will show up on the taxes for 2013, but they will be looking at 2014. Is that right?
Customer:

You sound knowledgeable, but here are some good articles: http://www.cbsnews.com/8301-505146_162-57381295/maximizing-next-years-financial-aid-for-college/

Customer:

Exactly ...

Customer:

Very good thinking (ahead), I've see NOT being proactive hurt many

Customer : So...the main question is, so we do have time to spend it (the jan 1. 2014 deadline is right?if we buye computer, but If we can't spend it down ( I mean it is for his college) can we park the money in our name?
Customer:

Yes, you do have this year, and as you know, in your name is XXXXX XXXXX

Customer:

Another thought is an LLC, (IF it's a legitimate business), rental properties, etc just like home equity these are not considered

Customer:

The business just has to have less than 100 employees to be exempt from listing

Customer : My husband and I both work and combined we make less than $150k Ann. Did we save too muc/too little?
Customer:

Probably also obvious, but the number of perple in the household and the number of people in college at one time also matter, as you start to do the FAFSAs

Customer : Ok thank you. I What's just worried about moving money into our name.
Customer:

It's all SO relative, if you save it all, and don't have to use loans that've by far the highest net present value (when you include the whole family). .... but if your objective is to have then pay for some of it themselves (to take some ownership) the environment for that may be getting better_

Customer:

There's something now called IBR (Income based repayment) for FEDERAL student loans, where they only have to pay at 15% of their discretionary income ... gives them lots of time to get on their feet

Customer:

But no, moving it into your name BEFORE is a legitimate planning technique just don't falsify anything , and you'll be fine

Customer : Thank you. And by falsify you mean don't do what (now I am losing my sophistication). Tell me a scenario that will raise a red flag.
Customer:

I'm just saying, list things as they actually are,.... moving them into you name is XXXXX XXXXX just don't say something is in your name when it isn't ... that's all

Customer:

It sounds like you understand the system quite well

Customer : So if i park the money in an investment in my name, make withdrawals from it's capital gains once he's in college I will screw up the fafsa for the next year... how about a checking account in my nameto write checks for tuition from my name
Customer:

There ya go

Customer:

You'd want monty that's going to be used that quickly (within a year or two) in something that's interest bearing anyway

Customer : Ok And of course I would only list on the FAFSA the accounts with the owners as they really are. I'm just trying to get the ownership in a good place by then ha ha
Customer:

You migh even want to consider using the investment accounts inside the 529s (we've talking about investment management now, nothing about financial aid) that way

Customer:

I understand :) I just always tell folks (probably stating the obvious) not to falsify anything ... because we're talking about federal law here .... but again don't let that scare you from doing the smart thing and moving it into your name while you can

Customer : Sorry, I think I got my money's worth, I don't want to take advantage. I was just worried as custodian I couldn't touch his money without showing receipts on where it wet
Customer:

nope . I've been in the investments business for 26 years and I've never seen custodians asked for receipts

Customer : Thank you. Our two sons aer Boy Scouts and we sent them to Alaska last summer going to the jamboree and to Philmont, wespend a lot of money on these kids I think just want to start using "their "money for the trips now, in addition to their fundraising and summer jobs. I appreciate your help , goodnight
Customer:

The IRS guidance on that is that ou just have to honor the fact that is ``for the full use and benefit of the child.'' where 529 money is for qualified education expenses only

Customer:

Good evening ... sounds like you have something (ones) to be proud of\

Customer:

Can I help you with anything else?

Customer : :-). Well actually my parents are in their late 70s want to know what to do with their money to make it stretch but I think I have to pay you again :)
Customer:

:)

Customer:

If they're conservative .....

Lane, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3718
Experience: Providing Financial & Tax advice since 1986
Lane and 6 other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.


OK we'll handle that one with another question sometime.



To ask for me again, say “ForCustomer at the beginning of your question

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Go here: http://www.justanswer.com/finance/expert-npvadvisor/

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Thanks,
Lane

Expert:  Lane replied 1 year ago.

Thank you so much for the feedback and bonus...

 

 

 

By the way, on your parents, they might want to consider holding a portfolio of bonds (yes, rates are terrible, and I don't know enough about their income to know whether tax free municipal bonds may make sense).

 

 

 

 

But holding them to maturity take the interest rate risk (bonds go lower as rates go higher) off the table.

 

 

 

Then laddering them, holding bonds that mature anywhere from a few months from now to several years out can be a way to increase the rates (a little) and then have a bond coming due every six months or so, to reinvest at potentially higher rates going forward.

 

 

 

And finally, if the dollars are NOT going to be needed by them for retirement, but are likely to go to the next generation, then equities (especially the blue chip, higher dividend paying stocks) may have a place in the portfolio.

 

 

 

Thanks again

 

 

Lane

 

 

 

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