Inheritance and College Financial Aid

[Anonymous]

My mother passed away two years ago and left me a Designated Beneficiary Account worth about $500K. This is not a marital asset but is intended to partially fund DH’s and my retirement. Our HHI is $225K and our retirement savings are behind schedule due to graduate school loans, periods of unemployment, medical expenses, etc. We’re both 56.

We’ve saved enough in a brokerage account for an instate public college education for senior DD - $130K. I was reluctant to open a 529 years ago because we’re hoping DD will get a talent scholarship (this may happen) and she’s an only child. Of course, we’re not counting on a scholarship but wanted flexibility to use the funds for retirement or help her with a house downpayment someday if we can.

Now that we’re about to fill out financial aid forms, and considering a few OOS options, I’m wondering if we should do something smarter with this designated beneficiary account and brokerage account that will afford flexibility and minimize the negative impact this will have on college financial aid.

Should we open a 529 now? Would that make a difference in financial aid calculations? Or should we wait to find out where DD lands since we’ve waited this long to preserve flexibility?

[Anonymous]

Is the inherited account an IRA? If it is, you won't have to show it on the FAFSA. And anyway, with an HHI of $225k and only one child, you likely won't qualify for financial aid.

[Anonymous]

Are you looking at OOS public schools?
If yes - they typically do not offer Financial Aid to non-state residents beyond the federal financial aid elements so you actions do not really matter one way or another.

[Anonymous]

You are asking how to hide money? How you want to use money is up to you but that doesn't make you more deserving for aid. You can comfortably pay out of pocket for the difference.

[Anonymous]

Can you put the money in your retirement accounts, or open a new one in your name? An IRA should not count in either FAFSA or CSS profile.

It's not likely you'll get much financial aid anyway, and financial aid is mostly in the form of loans.

Also, never count on scholarships or awards, OP. If your kid applies to a target/safety who really wants your kid, they will offer merit aid. But then you have to go to the target/safety. A reach will never give you merit aid. And a "talent" scholarship will probably not be a huge sum of money.

[Anonymous]

So you'd rather not pay for college so you can use the money for a downpayment for your daughter? Wouldn't we all?

[Anonymous]

Anonymous wrote:So you'd rather not pay for college so you can use the money for a downpayment for your daughter? Wouldn't we all?

I’m not claiming poverty. Just trying to figure out the smartest way to structure our accounts.

[Anonymous]

Anonymous wrote:

Anonymous wrote:So you'd rather not pay for college so you can use the money for a downpayment for your daughter? Wouldn't we all?

I’m not claiming poverty. Just trying to figure out the smartest way to structure our accounts.

You have to decide what your priorities are. A 529 is for small tax advantages. If you want to do state school and a downpayment, fine but given you have that kind of money, you shouldn't count on aid. You use the savings and cashflow the rest.

[Anonymous]

Anonymous wrote:

Anonymous wrote:So you'd rather not pay for college so you can use the money for a downpayment for your daughter? Wouldn't we all?

I’m not claiming poverty. Just trying to figure out the smartest way to structure our accounts.

Smartest way to (your words) “minimize the negative impact this will have on college financial aid.”

[Anonymous]

You are not going to receive financial aid at any colleges. Perhaps merit aid (or talent, as you have stated). Pick a few random colleges that might be on the list and look at their net price calculator - you'll see, no financial aid is coming your way

[Anonymous]

Please, this is a money forum. Nothing wrong with OP asking the best way to structure something to improve financial outcome. Please go to social topic forum for the preaching. Not sure that there is a way given HHI — but still.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:So you'd rather not pay for college so you can use the money for a downpayment for your daughter? Wouldn't we all?

I’m not claiming poverty. Just trying to figure out the smartest way to structure our accounts.

You have to decide what your priorities are. A 529 is for small tax advantages. If you want to do state school and a downpayment, fine but given you have that kind of money, you shouldn't count on aid. You use the savings and cashflow the rest.

529 is for more than "small tax advantages". The biggest one is the tax free growth, the smallest is the "no state taxes" if applicable for your state

[Anonymous]

Anonymous wrote:My mother passed away two years ago and left me a Designated Beneficiary Account worth about $500K. This is not a marital asset but is intended to partially fund DH’s and my retirement. Our HHI is $225K and our retirement savings are behind schedule due to graduate school loans, periods of unemployment, medical expenses, etc. We’re both 56.

We’ve saved enough in a brokerage account for an instate public college education for senior DD - $130K. I was reluctant to open a 529 years ago because we’re hoping DD will get a talent scholarship (this may happen) and she’s an only child. Of course, we’re not counting on a scholarship but wanted flexibility to use the funds for retirement or help her with a house downpayment someday if we can.

Now that we’re about to fill out financial aid forms, and considering a few OOS options, I’m wondering if we should do something smarter with this designated beneficiary account and brokerage account that will afford flexibility and minimize the negative impact this will have on college financial aid.

Should we open a 529 now? Would that make a difference in financial aid calculations? Or should we wait to find out where DD lands since we’ve waited this long to preserve flexibility?

Here was your first mistake. The idea that your kid might get a scholarship doesn't mean you don't open a 529. It means you might be able to pull that amount back out of the 529 at college age with no penalty.

The best way to preserve the flexibility you're looking for is to tell DD that you can fund in-state options and she would have to make up the difference for anything more expensive. If you need this money for retirement, then you need it for retirement. But you weren't going to get need-based financial aid at $225k HHI without an inheritance anyway, so this is a tempest in a teapot.

[Anonymous]

Anonymous wrote:You are not going to receive financial aid at any colleges. Perhaps merit aid (or talent, as you have stated). Pick a few random colleges that might be on the list and look at their net price calculator - you'll see, no financial aid is coming your way

This. That inheritance won't matter. Income is the biggest factor and with your income plus already enough saved to cover in-state cost you are not getting need-based aid anywhere. Which is fine! You can cover in-state cost, that's great!

[Anonymous]

My thoughts from a non-expert so evaluate accordingly. I’m not sure if the dba is a retirement account? If so, I’d keep as an Ira and then figure out what to do with any mandatory distributions. If it’s not already an IRA, consider maxing out your 401K if not already doing that. I’m also doubtful about qualifying for financial aid but run the npc at a couple schools, including Princeton which will likely show you best case scenario for aid.
The difference between a brokerage account or 529 (both ~5.65%) and retirement assets (0%) isn’t huge in the college’s calculations for one year. So I wouldn’t worry too much the first year. It’s only if you put the brokerage in your child’s name that it’ll be assessed at around 25% because kids’ assets are assessed really high (529 is a parent asset).
My two cents is that your bigger question is how you handle your money most advantageously for your retirement without converting it to a marital asset.