You’re proud of your daughter for working hard and saving her money — but could her little pile of cash actually reduce the amount of financial aid she’ll receive to help pay for college?
If your daughter has a nice little stash of cash in her own name during the time your family finances are scrutinized to see how much you can afford to pay for college, she’ll be asked to contribute a significant portion of that money to pay her own college bills.
How can you help your daughter keep as much of her hard-earned money as possible?
1. Suggest that she stash her money away in retirement accounts before January 1 of her 10th grade year.
If your daughter stashes her extra cash away in a retirement account such as a Roth IRA by this date, it’ll be safely tucked away and won’t be considered at all in financial aid calculations.
If she tries to stash cash in retirement accounts between January 1 of 10th grade and January 1 of her sophomore year of college, though? That will reduce her future financial aid awards.
2. Suggest that she put the money she really wants to save for college into a 529 plan owned by her grandparents (with her named as the beneficiary).
Money saved in this way won’t affect your daughter’s future financial aid awards at all — as long as she takes the money out and spends it on “qualified educational expenses” after January 1 of her sophomore year of college (when the influx of cash can no longer hurt her future financial aid awards).
Why not just put her college savings into a 529 plan owned by her own parents? She can, and a lot of students do — but if she does this her future financial aid awards will be reduced by 5.64% of that amount. (If she puts $1000 into a 529 savings plan owned by her own parents, her future financial aid award will be reduced by $56.40.)
To find out why grandparent-owned 529 plans are fantastic places to put college savings, subscribe to my email newsletter using the form on this site. I’ll be featuring a newsletter article on that subject soon.
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3. Suggest that your daughter always know exactly where her “safe” income line is.
Between January 1 of her 10th grade year and January 1 of her sophomore year of college, your daughter will be able to earn just a certain small fixed amount of money each year without cutting into her future financial aid awards.
As of 2015-2016 that amount was $6,400 per year after taxes (about $7,162 before federal, FICA, state, and other taxes are taken out), with the amount adjusted upward slightly each year for inflation.
4. Be aware of the portion of her income that is always “safe” and so is never included in the above total.
The fixed amount of income described in #3 above does not include her earnings from college work-study programs, co-op college programs, or grad school assistantships or fellowships. Income from these sources never counts against her for financial aid purposes no matter how high it might be. (A great reason to always accept them eagerly when they are offered!)
5. Suggest that your daughter strategize so that she earns right up to the line — and then doesn’t go one toe over it.
Wouldn’t it be a great goal for your daughter to try to earn exactly that small $6,400 – $7,000 amount of money each year starting on January 1 of her sophomore year of high school and stretching until January 1 of her sophomore year of college?
If your daughter earns $9.00 per hour at her job, she may want to stop working and put more time into volunteering once she’s worked about 795 hours in each of these years.
January 1 of her sophomore year of college is the date when her earnings can no longer affect her college financial aid awards, so she can earn all she likes after that.
Suggest that your daughter carefully spend down most of her cash just before October 1st of her junior year of college.
Perhaps she can call the bursar’s office at her college and university and see if she can pre-pay some of her upcoming college bills.
Why is this a good idea? Because October 1 of the junior year of college will be the last time she’ll submit a FAFSA form to get financial aid for her undergraduate years. To get maximum financial aid to help pay for her senior year of college, she’ll want to be sure she has as little cash as possible sitting around in accounts in her name on that date.
Would you like clear, step-by-step help getting your kids through college debt free?
Subscribe to my weekly email newsletter using the form on this site, and then open it every single time it lands in your email inbox. Then watch for my upcoming book LAUNCH: How to Get Your Kids Through College Debt Free and Into Jobs They Love Afterward (due out in 2016). This book will provide clear, step-by-step instructions on how to get your kids through college debt free — starting in middle school.
What about you? What ideas do you have for helping students to hang onto their money through the college years? Comment below, or LIKE “Jeannie Burlowski, Author” on Facebook and let’s talk about it there. Do you have friends who are currently parenting kids age 15 – 22? SHARE this post on Facebook, Twitter, and Linkedin right now.
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