Author Topic: Should I liquidate my daughter's 529 account?  (Read 2649 times)

Giro

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Should I liquidate my daughter's 529 account?
« on: December 30, 2015, 07:24:59 AM »
My older daughter graduates from college this year and my younger daughter has 8 more years until she starts college.  I will retire before youngest starts college.  I have read that 529 accounts count negatively towards any financial aid for which she would otherwise be eligible.  We may very well earn too much for her to receive financial aid anyway, but should I risk that by keeping the money in the 529?

Older daughter never qualified for grants due to our family income.  She received several scholarships but mostly I just paid cash for her tuition and books. 

I can liquidate the account since older is still in college and I can move the money into her name and transfer it all to Vanguard. 

What say all of you very smart mustachians?

seattlecyclone

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Re: Should I liquidate my daughter's 529 account?
« Reply #1 on: December 30, 2015, 09:18:45 AM »
The FAFSA considers a 529 account owned by you the same as it considers any other asset you have, like a taxable brokerage account (retirement accounts and primary residence are excluded). Parents' assets don't raise the expected family contribution by a whole lot, something like five cents on the dollar. If you will be retired you won't have your salary anymore, which will make a much bigger difference than whether or not you still have a 529 account open.

Whether or not you liquidate the account and transfer it to your older daughter should really be a question of whether you want to give that much money to your older daughter at this time. If you do, transferring it from the 529 would have the same effect on your younger daughter's financial aid as transferring it from a taxable brokerage account. Meanwhile, leaving that money to grow tax-free in the 529 until your younger daughter is in college could be a smart move, assuming you expect to contribute that much to her future education.

Giro

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Re: Should I liquidate my daughter's 529 account?
« Reply #2 on: December 30, 2015, 11:45:23 AM »
I guess it's not that big of a difference.  How many years does FAFSA go back as far as income? 

So, if I plan it right and don't take anything out of our investments for a year or two or three, will that help?  Just live off of my husband's retirement money, maybe?


Apples

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Re: Should I liquidate my daughter's 529 account?
« Reply #3 on: December 30, 2015, 12:35:18 PM »
AFAIK FAFSA uses the previous year's income.  And that's it.

mxt0133

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Re: Should I liquidate my daughter's 529 account?
« Reply #4 on: December 30, 2015, 01:05:16 PM »
You say your older daughter received scholarships, the amount in scholarships she received can be taken out penalty free, gains will be taxed at your daughters income tax rate if distributed to her.

http://www.savingforcollege.com/articles/avoid-these-529-withdrawal-traps?page=2

As for the rest of the amount, it would probably make sense to just transfer it to your youngest daughter.  I would recommend consulting a CPA due to nuances of your situation.

Don't get me wrong it's a great problem to have, but one of the reasons why I didn't go down the save for college route with my kids and just reach FI as quickly as I can.  Retirement accounts are not included in FAFSA expected contribution calculations, plus you have the flexibility of controlling your income when they get to college.  I figure if I spend my time, energy, and money educating them before they get to college then hopefully they wouldn't even need to pay for it.

seattlecyclone

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Re: Should I liquidate my daughter's 529 account?
« Reply #5 on: December 30, 2015, 02:02:20 PM »
I guess it's not that big of a difference.  How many years does FAFSA go back as far as income? 

So, if I plan it right and don't take anything out of our investments for a year or two or three, will that help?  Just live off of my husband's retirement money, maybe?



You can see the whole formula here. This should let you predict any number of possible scenarios.

Giro

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Re: Should I liquidate my daughter's 529 account?
« Reply #6 on: December 30, 2015, 02:52:13 PM »
You say your older daughter received scholarships, the amount in scholarships she received can be taken out penalty free, gains will be taxed at your daughters income tax rate if distributed to her.

http://www.savingforcollege.com/articles/avoid-these-529-withdrawal-traps?page=2

As for the rest of the amount, it would probably make sense to just transfer it to your youngest daughter.  I would recommend consulting a CPA due to nuances of your situation.

Don't get me wrong it's a great problem to have, but one of the reasons why I didn't go down the save for college route with my kids and just reach FI as quickly as I can.  Retirement accounts are not included in FAFSA expected contribution calculations, plus you have the flexibility of controlling your income when they get to college.  I figure if I spend my time, energy, and money educating them before they get to college then hopefully they wouldn't even need to pay for it.

True, but contributions to retirement accounts are limited and they're going to consider other investments the,same way they will consider 529 accounts. 

I'm going to check out the website.