The 529: "Friend" or "Foe?"
Did you just assume that you can't qualify for any kind of financial aid, so why should you bother filling out the FAFSA or other applications?
You could be mistaken.
I made this point to a tremendous crowd (North of 16!) in my office last night, at our weekly workshops.
Non Politically Correct Fact Alert: Turns out that the majority of aid goes to upper income families, or six-figure earners.
Is that a bad thing? A good thing?
I don't judge. I'm just reporting on what is. Just the facts, here on Planet Earth.
Although income is super important, there are more factors that go into the financial aid eligibility stew. Namely, assets.
But here's the thing...
In Financial Aid, It's Not How Much You've Saved. It's WHERE.
Some types of savings -- in your kids' names -- penalize you WAY more than others.
Some types -- parent savings accounts -- penalize you far less.
And some types of savings accounts are -- wait for it -- PENALTY FREE.
Totally exempt from the financial aid formulas.
I cover those loopholes in our weekly in-office seminars, so permit me to move onto the topic of today's note: the 529 college savings account.
Here's the deal...
The answer to the question "Is the 529 good or bad?" is nuanced. It's great for some families, bad for others.
The 529 savings plan, while bursting with tax free benefits, may come back to bitecha in the financial aid process.
Because 529 accounts are an includable asset as far as the financial aid rules are concerned. The 529 REDUCES your eligibility for aid.
Whoa Nelly. Take your finger off the button, I'm not saying that you should immediately sell the 529 and stuff the proceeds into an exempt asset.
That could work for you, but my best guess is that this strategy will NOT pan out for 80% of the folks reading this At least.
The decision whether to "shelter" (not "hide," that's sleazy!) assets to get more financial aid is fraught with landmines and other stumbling blocks, including but not limited to:
The actual colleges your kiddo is applying to, whether she gets in, your Adjusted Gross Income, taxes and penalties on non-qualified uses of 529 proceeds, where you deposit those funds esp. risks, potential return on investment, how long you have to "lock up" your funds and more (pant, pant!)
I don't like to talk about this much, but one of our core services is helping families with exactly this kinda stuff: the overly complicated, convoluted, high stakes financial aid process.
If you want help. go here or read this short shameless, crudely capitalistic message (which contains a nifty discount code):
Offer
If you want to be able to comfortably afford your kids' college tuitions, without drastic changes to your lifestyle or decimating your retirement savings...
The best defense is a good offense. If you want expert help getting every last dollar of free grants and scholarships you deserve...
...plus high powered assistance negotiating your financial aid and merit aid offers...
...and a seasoned pro to prepare and help you file your financial aid applications, respond to countless nickel and dime questions that crop up AFTER you file..
..and generally speaking, take you by the hand and lead you through the ENTIRE complex, stressful and landmine-laden process of applying for aid today...
You should take a hard look at our Financial Aid Warrior consulting program, before we shut it down this Fall.
Pearl, a former prosecutor in Queens County NY back in the day, handles the financial aid applications and process for approximately 400 families per year. She's thorough and tenacious. (Yes, I'm biased but I speaketh the truth.)
We've opened the door for new clients today, October 1, now that the FAFSA and CSS Profile have been released.
Instant "Early Action" Scholarship: 10% Off
Use the coupon code PEARL10 or PEARL10-EZ for the 1-pay or 5-pay options.
Here's where to learn more, go here before the clock hits zero:
Speak soon,
- Andy "411 on the 529" Lockwood
P.S. Not to complicate things, but the rules about how to PAY BACK your loans also changed. The deadline to enroll in the current repayment plans is July 2026.
Then the best repayment options are sunsetted, as the bureaucrats say.
Here's where you can do a consult with Pearl to pick the right way to go.