College aid: Do retirement fund and equity in primary residence count?

[Anonymous]

Anonymous wrote:This is a little different but the financial guy at my bank told my that unless you fully fund a 529 you shouldn't do it. It counts as an asset. So if you save as little as $50,000 you could end up not qualifying for FA. And as we all know $50,000 will barely make a dent. I had never heard of this or thought of this. I'm going to talk to my actual financial planner to confirm if this is true. The guy at my bank said I should open a SEP IRA (I'm self-employed). It does not count as an asset and you can pull from it, tax free, for educational purposes.

It counts as an asset, but it generally decreases your award only by about 5-6% of the account value, so if you save $50,000, it would reduce your award by about $3,000.

[Anonymous]

Anonymous wrote:

Anonymous wrote:This is a little different but the financial guy at my bank told my that unless you fully fund a 529 you shouldn't do it. It counts as an asset. So if you save as little as $50,000 you could end up not qualifying for FA. And as we all know $50,000 will barely make a dent. I had never heard of this or thought of this. I'm going to talk to my actual financial planner to confirm if this is true. The guy at my bank said I should open a SEP IRA (I'm self-employed). It does not count as an asset and you can pull from it, tax free, for educational purposes.

It counts as an asset, but it generally decreases your award only by about 5-6% of the account value, so if you save $50,000, it would reduce your award by about $3,000.

EXACTLY. This cannot be said often enough. It is crazy to choose a strategy of NOT saving for college in order to maximize financial aid. Would you rather have $50,000 in the bank and an annual expected family contribution of, say, $23,000, or have $0 in the bank and an expected family contribution of $20,000?

If you truly can't afford to save for college AND retirement, you should save for retirement. If you can afford to save for retirement AND save at least something for college, it is wise to do so. Deliberately avoiding saving for college is not a sound financial strategy (assuming you intend to pay for some portion of your child's college expenses).

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:This is a little different but the financial guy at my bank told my that unless you fully fund a 529 you shouldn't do it. It counts as an asset. So if you save as little as $50,000 you could end up not qualifying for FA. And as we all know $50,000 will barely make a dent. I had never heard of this or thought of this. I'm going to talk to my actual financial planner to confirm if this is true. The guy at my bank said I should open a SEP IRA (I'm self-employed). It does not count as an asset and you can pull from it, tax free, for educational purposes.

It counts as an asset, but it generally decreases your award only by about 5-6% of the account value, so if you save $50,000, it would reduce your award by about $3,000.

EXACTLY. This cannot be said often enough. It is crazy to choose a strategy of NOT saving for college in order to maximize financial aid. Would you rather have $50,000 in the bank and an annual expected family contribution of, say, $23,000, or have $0 in the bank and an expected family contribution of $20,000?

If you truly can't afford to save for college AND retirement, you should save for retirement. If you can afford to save for retirement AND save at least something for college, it is wise to do so. Deliberately avoiding saving for college is not a sound financial strategy (assuming you intend to pay for some portion of your child's college expenses).

OP here. I'm still not sold on the 529 if it will reduce how much aid we can get. If I have a lot in my retirement fund, can't I just borrow from that? I will be past 59 1/2 when my kids reach college, so I will be able to withdraw retirement, too (although I will want to hold off until they're out of college or else it will be counted as income).

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:This is a little different but the financial guy at my bank told my that unless you fully fund a 529 you shouldn't do it. It counts as an asset. So if you save as little as $50,000 you could end up not qualifying for FA. And as we all know $50,000 will barely make a dent. I had never heard of this or thought of this. I'm going to talk to my actual financial planner to confirm if this is true. The guy at my bank said I should open a SEP IRA (I'm self-employed). It does not count as an asset and you can pull from it, tax free, for educational purposes.

It counts as an asset, but it generally decreases your award only by about 5-6% of the account value, so if you save $50,000, it would reduce your award by about $3,000.

EXACTLY. This cannot be said often enough. It is crazy to choose a strategy of NOT saving for college in order to maximize financial aid. Would you rather have $50,000 in the bank and an annual expected family contribution of, say, $23,000, or have $0 in the bank and an expected family contribution of $20,000?

If you truly can't afford to save for college AND retirement, you should save for retirement. If you can afford to save for retirement AND save at least something for college, it is wise to do so. Deliberately avoiding saving for college is not a sound financial strategy (assuming you intend to pay for some portion of your child's college expenses).

OP here. I'm still not sold on the 529 if it will reduce how much aid we can get. If I have a lot in my retirement fund, can't I just borrow from that? I will be past 59 1/2 when my kids reach college, so I will be able to withdraw retirement, too (although I will want to hold off until they're out of college or else it will be counted as income).

Oh, I don't think this means you have to save in a 529. Stuff it under your mattress if you want. What I'm saying is that if you have the ability to set aside money for college, do it.

Regarding stashing your college money in retirement savings vehicles, I think one just has to weigh the costs and benefits of each. Some retirement funds can't be accessed without penalty/taxes, so it can be a costly way to save for college. Saving for college using Roth IRAs and others that can be accessed for education can make a lot of sense. (Of course, if that becomes common, one wonders if colleges will start asking if you have assets in Roth IRAs and treating that money like a 529.) OTOH, you don't get the tax benefit you might get from a 529. Etc.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:This is a little different but the financial guy at my bank told my that unless you fully fund a 529 you shouldn't do it. It counts as an asset. So if you save as little as $50,000 you could end up not qualifying for FA. And as we all know $50,000 will barely make a dent. I had never heard of this or thought of this. I'm going to talk to my actual financial planner to confirm if this is true. The guy at my bank said I should open a SEP IRA (I'm self-employed). It does not count as an asset and you can pull from it, tax free, for educational purposes.

It counts as an asset, but it generally decreases your award only by about 5-6% of the account value, so if you save $50,000, it would reduce your award by about $3,000.

EXACTLY. This cannot be said often enough. It is crazy to choose a strategy of NOT saving for college in order to maximize financial aid. Would you rather have $50,000 in the bank and an annual expected family contribution of, say, $23,000, or have $0 in the bank and an expected family contribution of $20,000?

If you truly can't afford to save for college AND retirement, you should save for retirement. If you can afford to save for retirement AND save at least something for college, it is wise to do so. Deliberately avoiding saving for college is not a sound financial strategy (assuming you intend to pay for some portion of your child's college expenses).

OP here. I'm still not sold on the 529 if it will reduce how much aid we can get. If I have a lot in my retirement fund, can't I just borrow from that? I will be past 59 1/2 when my kids reach college, so I will be able to withdraw retirement, too (although I will want to hold off until they're out of college or else it will be counted as income).

And this is an important point, too. Since HHI counts much more heavily in determining financial aid than savings do, it could be penny wise and pound foolish to stash your college savings in retirement accounts to "hide" it from the financial aid officers and maximize your financial aid award in year 1, then withdraw $ from retirement to pay year 1 tuition, only to have the financial aid officer count that withdrawn amount to your income and really whack your financial aid amount for year 2.

[Anonymous]

I didn't have a 529. My dad worked with a financial planner to build enough assets that could be sold if necessary to fund college. If they weren't used for college, they stayed for retirement. I ended up getting a full scholarship for track. I was the youngest of 4 and the only one to attend college. That 529 would have been wasted money.

I would worry more about your own retirement savings, pay what you can out of pocket, and let the scholarships and subsidized loans do the rest. Be upfront with your child about the fact that they will be contributing to their college fund, be it by having the grades for the scholarships or by taking the loans. They have their whole lives to make money and pay off their education. You have a fixed amount of time to save for retirement.

[Anonymous]

Fully fund retirement first. I would personally contribute to Roth IRA if we qualified but we dont with our HHI. The limit for roth IRA is low though compared to 529. Don't forget tax advantages of 529 especially if you have a high HHI.

[Anonymous]

Anonymous wrote:Fully fund retirement first. I would personally contribute to Roth IRA if we qualified but we dont with our HHI. The limit for roth IRA is low though compared to 529. Don't forget tax advantages of 529 especially if you have a high HHI.

OP here again... by "fully fund" do you mean put in the maximum that you're allowed to contribute each year? (Or do you mean set aside enough for retirement, in which case I have no idea how much that should be...)

[Anonymous]

Anonymous wrote:Fully fund retirement first. I would personally contribute to Roth IRA if we qualified but we dont with our HHI. The limit for roth IRA is low though compared to 529. Don't forget tax advantages of 529 especially if you have a high HHI.

This isn't true anymore. You can contribute to an IRA and then do a conversation with not income limits.

[Anonymous]

Retirement contributions from work is maxed out. We have savings that are not in designated retirement accounts. We have relatively low income (for DC middle class) and modest house underwater - just bad purchase timing. What can we do with the savings to preserve them; we need it for retirement? Thanks.

[Anonymous]

How do things like bonuses affect financial aid? For instance my H's regular income is 150k. But then he received a 500k bonus on top of that this year. Would the school think our income for that year is 150k or 650k?*

* I realize we're fortunate financially but bonuses are not guaranteed.