Actual Case: HS Senior's 529 Plan balance was $78,734. His parents income qualified them for need-based aid and the 529 assets would have reduced gift-aid (we are concerned only with the free money aid that 529 Plans jeopardize) by $3,973 annually at his target college, Rice University.
Our Solution: Legally shelter and guarantee principal-protection for the $78,734 asset. Provide for annual withdrawals over four years of college, depleting the
account and returning 100% of principal, while NOT generating 1099-Rs, taxes or financial aid reductions. This solution should get the family$15,892 MORE free-money($3,973 x 4) than they would have received otherwise AND qualify them for subsidized, low-interest (3.4%) Stafford student loans on which the family was counting. Had we allowed the 529 Plan to eliminate their financial aid eligibility, the Stafford loan rate would have been 6.8%.
Not-paying $15,892 is the same thing as saving it. Therefore, $78,734 + $15,892 = $94,626. Didnít we essentially just turn a $78,734 asset into a $94,626 one? Over the four years of college, thatís a return of 20%!
How were we able to devise this game-changing strategy? Simple; the family completed theQuestionnaire, relaxed for a few days and then we talked about our solution.
Whatdidn'twe do? We did not participate in the investment industry's over-hyping of this product.
By the way, had this asset been a UTMA or UGMA (trust) account (as a lot of accountants who are not trained as college financial planning experts recommend), need-based aid would have been reduced by up to $15,747 annually - 20% of the asset - or $63,000 over four years. Were we to move a $78,000 UTMA asset, we would effectively turn that into a $141,000 asset!
Trick Question Alert! Rice is actually one of about 200 "Profile" colleges that uses another financial aid form - the CSS Profile - in addition to the FAFSA. Many Profile colleges count 529 Plan balances as Student Assets and reduce aid awards up to 25% annually of the 529 Plan balance. Then, some of them count withdrawals of the 529 money as Student Income, whacking financial aid for another 50% of the withdrawal. Oh, did your 529 Plan salesperson not mention this? Contact us soon to begin dealing with college financial planning specialists, not "college product" (529) salespeople.
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This Strategy turned $78,734 into $94,627.
Sample College Financial Planning Solutions
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