Victoria Cannillo, a Financial Analyst at Baron Financial Group, is quoted on this topic, answering a reader’s question on NJMoneyHelp.com by Karin Price Mueller, “How will my daughter’s money count for financial aid?”, originally published on October 3, 2023.
A 30-second read by Victoria Cannillo: Assuming your daughter is going to apply for financial aid, the FAFSA (Free Application for Federal Student Aid) application, will ask for specific account balances the student (and parent) owns. Any savings she has will be considered as an asset. If the money is in her name, 20% of the savings will be considered as being eligible for use to pay for college. Compare this to parental assets where only 5.64% is considered eligible.
To counteract this, you may want to either:
1) start spending down her savings account or
2) transfer some or all the money to another type of account, such as a:
- 529 College Savings Plan, where you are the owner, and your daughter is the beneficiary. 529 College Savings Plans are treated more favorably than savings accounts when it comes to financial aid. Earnings and withdrawals are tax-free when used for qualified expenses.
- Roth IRA Account. To open a Roth IRA, she would need to have some earned income.
Disclosure: This is a general communication being provided for informational purposes only. This material is not intended to be relied upon as a forecast, research, tax or investment advice. Please consult your financial planning and tax professional for personal advice.