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

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]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.[/quote]

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, [b]it would reduce your award by about $3,000.[/b]  [/quote]

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).[/quote]
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).  [/quote]

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.[/quote]

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