Viewing a single comment thread. View all comments

BourgeoisieInNYC t1_iui20qo wrote

Reply to comment by 93195 in Savings for baby (private school and college)- is a 529 worth it? by Taileile

Someone told us that if our child has a big 529 then she won’t likely qualify for any financial aid (when applying for FAFSA) and said it’s better to keep it in a savings account but NOT under the kid’s name..?

I feel like we need to talk to a financial advisor for these things which won’t be until 17+ years later

3

93195 t1_iui55os wrote

Your assets count in the FAFSA formulas too. Unless you are pretty low income, most “aid” is just going to be loans anyway. If you’re middle class or better, you’re not getting need based grants or free money, at least not under the system as it exists now. So don’t worry about it.

6

BourgeoisieInNYC t1_iui5ixt wrote

Thank you!! I grew up in a super low income household and that mindset is still hard to break out of even if I’m much better off now than my parents were. Thanks again for the reassurance. Def setting up a 529 this week!

2

Ruminant t1_iuipxfz wrote

To elaborate on the other reply (which is correct):

FAFSA computes an "expected family contribution" amount which it uses to judge eligibility for aid (particularly grant-based aid). Parents are expected to contribute 12% of their "discretionary net worth" to that amount. Dependent students are expected to contribute 20% of their total net worth to the family's expected contribution. This is where the advice to keep college savings out of the student's names comes from. (I pulled those percentages from here: https://fsapartners.ed.gov/sites/default/files/attachments/2020-08/2122EFCFormulaGuide.pdf)

However, most 529 accounts are owned by the parents. The child is just the "beneficiary". So FAFSA treats 529 accounts just like bank accounts, general investment accounts, and any other non-retirement account.

More significantly: your income has a bigger effect on your expected financial contribution than your assets. In order to build a large enough college fund that it can disqualify your child from receiving grant-based financial aid, you realistically need an income which alone is high enough to disqualify your child from receiving that aid.

2