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Location: Chapel Hill, NC, formerly NoVA and Phila
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Quote:
Originally Posted by SaucyAussie
529 money counts against you on the FAFSA resulting in a higher Expected Family Contribution (EFC).
You might be better off boosting your retirement accounts.
529 money is considered a parental asset, though, which means that only 5.64% of it is counted toward the EFC. So $100K in 529 savings would increase the EFC by $5640.
Also, a withdrawal from Roth, even to pay for college, is counted as income on FAFSA. And income has a much bigger effect on EFC than assets do. If you don't want it to count against you on FAFSA, you can wait until January of sophomore year to withdraw from Roth since FAFSA uses prior prior year for lookup but that doesn't help with freshman and at least half of sophomore year payments. Withdrawals from 529s don't count as income if it's a parental 529 account.
Also, if you withdraw earnings from a Roth, you will have to pay tax on the earnings, even if it's used for college. There is no tax on earnings from a 529.
Lastly, a parent's income has the biggest impact on the EFC so unless you are a fairly low income earner or you go to a "meets need" school, the EFC number is often meaningless when it comes to how much college aid you will get.
529 money is considered a parental asset, though, which means that only 5.64% of it is counted toward the EFC. So $100K in 529 savings would increase the EFC by $5640.
Also, a withdrawal from Roth, even to pay for college, is counted as income on FAFSA. And income has a much bigger effect on EFC than assets do. If you don't want it to count against you on FAFSA, you can wait until January of sophomore year to withdraw from Roth since FAFSA uses prior prior year for lookup but that doesn't help with freshman and at least half of sophomore year payments. Withdrawals from 529s don't count as income if it's a parental 529 account.
Also, if you withdraw earnings from a Roth, you will have to pay tax on the earnings, even if it's used for college. There is no tax on earnings from a 529.
Lastly, a parent's income has the biggest impact on the EFC so unless you are a fairly low income earner or you go to a "meets need" school, the EFC number is often meaningless when it comes to how much college aid you will get.
Wouldn't that depend on your age when you make the withdraw??
Lots of variables and assumptions here, of course everybody's situation is going to be different so it pays to educate yourself or find an advisor who can walk you through it.
Location: Chapel Hill, NC, formerly NoVA and Phila
9,778 posts, read 15,788,843 times
Reputation: 10886
Quote:
Originally Posted by SaucyAussie
Wouldn't that depend on your age when you make the withdraw??
Lots of variables and assumptions here, of course everybody's situation is going to be different so it pays to educate yourself or find an advisor who can walk you through it.
Yes, that is true; if the parent is 59 1/2 or older then there would be no tax implications for withdrawing the Roth earnings. And there are definitely lots of variables, so there is no blanket answer to where is the best place to put money for college. The Roth can have some advantages but disadvantages, too. My best advice (in general, not directed toward you) is to save for college no matter what because even if you qualify for some financial aid, you will still likely have big college expenses.
i heard its better to have your money tucked away in 401k/IRA/ROth retirement accounts and whole life insurance policies, as that will not be counted when your child has to fill out FAFSA and student aid applications? is this true?
It's best to not work for 2 years prior to sending the kid to college. A lot of the FIRE crowd game the system this way.
It's best to not work for 2 years prior to sending the kid to college. A lot of the FIRE crowd game the system this way.
Hard pass. I would have to have a lot of kids or make a lot less money than I currently do for this to make any sense. That would completely ignore the potential damage I’d do to career progression by taking time off
Location: Chapel Hill, NC, formerly NoVA and Phila
9,778 posts, read 15,788,843 times
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Quote:
Originally Posted by Lowexpectations
Hard pass. I would have to have a lot of kids or make a lot less money than I currently do for this to make any sense. That would completely ignore the potential damage I’d do to career progression by taking time off
I agree, unless you were about to retire anyway. I'd rather make $60K and pay $25K of that toward college than make nothing and get $25K toward college. Not to mention that you have to fill out FAFSA each year, so really you would need to quit working for 4 years. And lastly, getting a low EFC on the FAFSA is not the be all and end all. A very low or no income will qualify you for a Pell Grant and get you full aid at a few schools, some aid at some schools, and very little aid at many schools. Again, my best advice is to save for college. That will put you in the best position to get it paid for.
It's best to not work for 2 years prior to sending the kid to college. A lot of the FIRE crowd game the system this way.
It's like FIRE people will do anything to retire a few years earlier than the rest of us (like it's a contest or something). Often at the expense of saddling their kids with massive student loan debt. (Because FIRE people advocate funding retirement rather than 529s). I'd rather retire later than have my kids in debt $100,000 or more for their education. That's not a good way for a young person to start out their adult life. There are always trade offs, something that the FIRE crowd won't admit. And yes, I believe in state universities and junior college credits and all that, but college is still going to be very expensive, even more so, in 10 to 15 years from now. I can't imagine not saving something in a 529. I would never do Roth as it's not earmarked for college and in a divorce situation the spouse could take half of it and there goes the kid's college money.
Location: Was Midvalley Oregon; Now Eastside Seattle area
13,072 posts, read 7,508,849 times
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Quote:
Originally Posted by Frank Purlin
I have over $31,500 sitting in a couple 529's. My kids are done with their education, so this money is sitting unused.
Not sure what I'm going to do with it. I will probably take a non-qualified distribution, pay the tax/penalty.
We still have about $4k, 14 years after DS graduation. I think we will give it to future grandchildren or give it away.
DS had about $30k in his UGMA remainder. We financed his education through massive student loans 2002-2006 and let the UGMA pay the loans, hence his UGMA balance. The remainder he used for a down pay on a home. His student loans are just about paid off. The PLUS loans that we have on him have another 5-10 years remaining. We are 69/72. Best investment I ever did was his student loans.
I have over $31,500 sitting in a couple 529's. My kids are done with their education, so this money is sitting unused.
Not sure what I'm going to do with it. I will probably take a non-qualified distribution, pay the tax/penalty.
Can you give to grandkids?
Quote:
Originally Posted by carrcollie
I would never do Roth as it's not earmarked for college and in a divorce situation the spouse could take half of it and there goes the kid's college money.
Can't they take your 401k too in a divorce? I'm sure you contribute to 401k?
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