College financial aid officers across the county must be in a state of euphoria now that Congress has made 529 tax exemption permanent. Adding to their joy is a growing number of states making contributions to 529 accounts state tax deductible. Unfortunately, this will only encourage more unsuspecting families to set up these plans, which will be most of them down a path paved with financial hazards. Finally, any family who opens an inviting devastating consequences when the financial aid process begins and withdrawals are taken.
colleges are likely to count their blessings for every needy student who has the 529th Such plans allow schools to reduce financial aid awards dollar for dollar by enriching their billion dollar funding resources.
The financial aid formulas, students have no asset protection allowance (APA). The result is sadly, each year students lose 20 cents in financial aid for every dollar in cash, checking, savings, UGMA and / or UTMA accts. , of stocks, bonds, savings bonds, mutual funds, and the like.
better parents because their assets are estimated at only 5.6% annually during džeparac.Dva parent families, for example, with the older than 48 parents have an APA of $ 45,000, while one parent of 45, has only 19,700 dollars.
It gets even worse for families who are eligible for need-based financial aid. Colleges believe that money and resources to apply the means of assessment. Furthermore, they reduce some of their share of student aid, dollar for dollar! Assessment is avoided if the account holder is not part of the family household, ie a grandparent, but in college to help another is reduced.
Unfortunately, for tens of millions of dollars a year is spent unnecessarily by the college family who are aware of the consequences when setting up 529 savings. In fact, many brokerage firms have been sued and / or suspended due to incorrect use so-called 529 account.
solution : When the family becomes aware that they will qualify for need-based financial aid, and that all their money 529 are at risk to assess and even worse, it's not too late, and very easy to liquidate the account. Owner must contact the company managing their account and want to show the "non-qualified" (taxable) distribution. They will receive a redemption form and check will follow shortly after the form is submitted.
Of course, the liquidation is not without consequences either. All gains are subject not only a 10% penalty tax, as well as applicable income taxes on the account owner's tax bracket. However, it is certainly far less evil.
as family, who invested $ 40,000 and had $ 10,000 profit will receive a check for $ 50,000 for liquidation. Assuming 20% tax bracket, $ 10,000 is subject to income taxes $ 1,000 penalty and $ 2,000 of income tax. Although many families as much as $ 100,000 or more, the net result here is $ 47,000 to avoid a maximum $ 10,500 ($ 47,000 x 5.6% x 4) in the assessment. If the money is legally transferred to the financial vehicles that are not included in calculations of financial assistance, some or all of it would still be there at the time of graduation!
Here are two actual examples of what can be achieved when the property is legally move:
$ 15,252 scholarship from Princeton University
$ 18,030 of financial assistance received
$ 2,000 University of Tampa aid eligibility
$ 28,215 to help increase the repositioning
When confronted with these facts, financial aid officers countries have sidestepped and smoke shows a problem with comments like: "Depending on the value, there will be annual distributions to pay tuition and fees," or "our values may vary from year year ", and most disturbing note originating from a prestigious school in New England," Financial aid is not the issue here. Payment for Student education ."
Since the majority of American families can not afford four years tuition and related expenses without financial aid, it is certainly a question! Camouflaging the fact this is anything but par for the course when playing a game that today's college financial aid process has become.
The following shows you exactly how 529 Savings causing families to lose thousands of financial assistance.
in two-parent families, let's assume: an older parent of 44, 1 child, 17; AGI of $ 68,900, paid taxes $ 5,500, the parent property of $ 10,000, asset protection allowance of $ 42,100, student property in the amount from $ 124:
Script: $ 0 in a 529 savings plan
1. Cost of Attendance: $ 45,000 (COA = tuition, fees, room and board, books and associated costs)
2. Expected Family Contribution: $ 10,000 (.. EFC = the minimum food Polančec determines a family will pay at any college)
3. Financial need (FN) $ 35,000 ($ 45,000 - $ 10,000)
(FN = the maximum amount of aid a family will qualify for)
4. Student qualifies for the following support:
(A) $ 3,500 Stafford loan
(B) $ 4,000 Perkins loan
(C) $ 2,500 Federal Work-Study award
(D) $ 3,000 state grants, etc.
(H) $ 2,000 private scholarship
(F) $ 20,000 college scholarships, grants, tuition waivers, etc.
(G) Total $ 35,000
student will qualify for a maximum of $ 20,000 / yr in financial aid from the college. However, private scholarship is a bonus for the school, not a student. This allows them to reduce their aid dollar for dollar, because if (E) is $ 0, (F) will be $ 22,000.
Scenario B: $ 50,000 in a 529 savings plan
$ 45,000 COA less EFC = $ 11,000 $ 34,000 FN
5.Student qualifies for the following support:
(A) $ 3,500 Stafford loan
(B) $ 4,000 Perkins loan
(C) $ 2,500 Federal Work-Study award
(D) $ 3,000 state grants, etc.
(H) $ 21,000 college scholarships, grants, tuition waivers, etc.
(F) $ 34,000 Total
with $ 50,000 in a 529 savings plan, the family will most likely take a "qualified" distribution of $ 12,500 / year for 4 years, of which $ 11,000 will pay their EFC.Fakultet saves families will lose $ 1,500 / year in the financial support for 4 godine.Koledž contribution (E), will now be reduced to $ 19,500
Scenario C: $ 100,000 in a 529 savings plan
1 $ 45,000 $ 12,800 COA less EFC = $ 32,200 PV
6.Student qualifies for the following support:
() $ 3,500 Stafford loan
(B) $ 4,000 Perkins loan
(C) $ 2,500 Federal Work-Study award
(D) $ 3,000 state grants, etc.
(H) $ 19.200 College scholarships, grants, tuition waivers, etc.
(F) $ 32,200 Total
with $ 100,000 on 529 savings plan, the family will most likely take a "qualified" distribution of $ 25,000 / year for 4 years. $ 12,800 to pay your EFC
will save the college and the family will lose $ 12,200 / yr in financial aid due to the $ 12,200 grant to offer college has replaced 529 distribucije.Koledž contribution (E), will be reduced to $ 7,000.
If the money were in financial vehicles are not included in financial aid calculations, the EFC would be reduced to $ 10,000 (screenplay) and they would qualify for $ 22,000 / year for 4 years in financial aid from college.
Summary:
In the above scenario C, families with modest and substantial EFC 529 najviše.Slomiti state will lose even point when the 529 annual distributions equal EFC and your account has a zero balance at the end of four years - likely occurrence. There are countless scenarios that could play here, but as always, to the "neediest" families who have lost the most.
529 do not fall for the trick this Halloween or any other time of year. 529 savings should be avoided at all costs, so that they become expensive! To win the game of college funding, which starts all over again every year, the family must have the most up to date information, the precise time and persistence. And families should not lose sight of the fact that all financial aid in the world is useless without that coveted tickets!
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