Tips for College Planning
Tips on College Planning for a Child or Grandchild
My oldest daughter is 18 years old which means that I am in the thick of helping her apply to colleges and universities. As parents, it serves us to position money in a way that allows the student to receive the most financial aid. As a general rule we want to limit the amount of money that is directly in the student’s name. Why? The FAFSA form, which is the Free Application For Student Aid, puts the greatest emphasis on student owned assets when considering how much the student or family should contribute towards tuition. I have used guardian investment accounts to teach my children about investing, but I have been careful in not allowing the accounts to grow too large. Large is a relative term and each parent can decide that for themselves, but I chose to limit assets in my daughter’s name to remain below $5,000. When the account grew over that amount, I would make a withdrawal and place the assets in an account in my name that I reserved for her future. Why my name? Again, the answer is the FAFSA form. FAFSA only counts 5.64% of parent-owned assets when determining how much a family should pay towards tuition. And 401ks, IRAs and retirement plans are typically not included in determining how much a family must contribute towards tuition. The FAFSA form will ask the value of cash accounts, individual investment accounts, real estate other than your home and some business assets. A new rule has made grandparent-owned 529 plans much more attractive. In the past we shied away from having grandparents own 529 plans for a student because the distribution could count against the student by their junior year (because FAFSA looks two tax returns back), resulting in less financial aid. However, a change in the rule via the FAFSA Simplification Act changes all that. Distributions from a grandparent-owned 529 plan no longer inadvertently hurt the student’s chance of receiving financial aid, and the FAFSA form presently doesn’t ask for grandparent-owned assets. Win, win! If you have a 529 plan in your name for the benefit of a child, it may make sense to transfer ownership to a trustworthy grandparent. The FAFSA form also doesn’t directly ask for cash value of life insurance policies, making Indexed Universal Life policies even better. Good luck parents, you’ve got this and we are here to help.
Fall in Ohio
I snapped this picture a few weeks ago at Blue Heron Preserve near Burton. My daughter took her senior pictures there and Lindsay and I took the opportunity to enjoy fall in Ohio. The preserve is an old mine that nature has reclaimed and made beautiful once again.
"The poetry of nature is never dead." - John Keats
Client Questions
"I own a business that pays for a life insurance policy on my life, is that a good idea?"
I fielded that question this week. The answer depends on who is the beneficiary. Crosby Advisory Group, LLC pays for a life insurance policy on my life, and the business is the beneficiary. In this instance, if I were to die, Crosby Advisory Group, LLC receives the benefit tax free. It's also important to note that for the business to receive the benefit tax-free it can’t take a deduction for the cost of the policy. However, if Crosby Advisory Group, LLC paid for a life insurance policy on my life but I made my wife the beneficiary, then when I die, the benefit is taxable to my wife. Not good! It's a better deal if I pay for the life insurance policy myself, that way the benefit is completely tax-free to my wife.
Disclaimer: Crosby Advisory Group, LLC is a registered investment advisor. This podcast is for general knowledge and is not intended to be individual investment advice. Investing involves risk including potential for loss. Understand all risk and fees before investing. NMD Insurance is affiliated with Crosby Advisory Group, LLC.
