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How These Common Assets Can Affect Your Financial Aid Eligibility

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Financial aid is a valuable resource for students and their families. And sending a child off to college is one of life’s biggest (and often most expensive!) events. Unfortunately, certain assets may adversely affect student financial aid eligibility. That’s why careful financial planning is particularly important for families with college-age children.

Federal financial aid eligibility is calculated using many variables including parental income and assets and your child’s income and assets, as some of the most significant. Income and assets attributed to the child (rather than you as the parent) will increase the EFC, or Expected Family Contribution.

The EFC is a measure of the family’s ability to pay for college. But strategic financial planning can help you save funds for college without increasing your EFC and reducing your child’s financial aid eligibility. Let’s look at the ways some common assets affect financial aid eligibility.

Retirement Accounts
401(k)s, and Roth and traditional IRAs are not used to determine your EFC. However, funds withdrawn from these accounts, even if not used for college expenses, are counted as income and thus can affect your EFC.

Home Equity
Federal financial aid calculations do not include equity in the parent’s primary residence. Individual institutions, however, may include equity when determining aid eligibility.

UGMA/UTMA accounts
These can be considered either the parent’s or the student’s asset, depending on how the account is titled and who is named as beneficiary.

Family Owned Businesses
The value of small family owned businesses is not included in the federal aid calculation if at least 50% is owned and controlled by the family, and it has less than 100 employees.

Life Insurance Policies and Annuities
The cash values of these assets are not included in the federal aid calculation.

Mutual Funds
The value of mutual funds is considered an asset, while distributions and capital gains are considered income. This is an important distinction because the portion of income that can be included in the federal aid calculation is much more than the portion of assets that can be included.

529 Savings Accounts and Coverdell ESAs

These are typically considered parental assets. Withdrawals are not included unless coming from a third-party account, such as that of a grandparent.

As you can see, planning for college requires consideration of many factors, such as which assets affect financial aid and how they do so. You can maximize your student’s financial aid eligibility, however, by developing a financial plan that will allow you to take advantage of asset exclusions when filing the FAFSA.

To do this, consult with us as your lawyer about your financial resources and financial needs when it comes to college. We can help your family accommodate the costs of higher education by taking advantage of the ways in which you can minimize your EFC while still preserving assets.

This article is a service of Kundani& Chang LLP. We are an award-winning law firm that specializes in business and estate planning for clients like you. The goal for every family is to stay educated on all topics like this, avoid probate, avoid estate taxes, and build a legacy for you and your loved ones. What sets our firm apart is that we build lasting, lifelong relationships with our clients. They rely on us to keep them updated, provide sound legal counsel, and be there for them immediately if any problems should ever arise. The best part is we don’t charge hourly fees to our families, so you never have to worry about speaking to us. If you’re ready to keep your family out of Court, contact us today to schedule an initial consultation or visit our website at www.kckwlaw.com

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