I have 3 kids a senior a junior and one in middle school. each have nominal amounts in a 529.

I have alot in my 401k but don't want to touch that and I have my home almost paid off.

I want to refinance and take $70K out for each of them before the rates go up which i think they will by next year.

Should i put this money in a short term investment account or park it in a 529 for each of them locking in current tuition?

Will having liquid cash affect financial aid?

Is it better for them money to be in my name or theirs?

Thanks!

I have alot in my 401k but don't want to touch that and I have my home almost paid off.
Neither of those are assets considered for FAFSA.
See:
http://www.getreadyforcollege.org/gPg.cfm?pageID=1334


park it in a 529 for each of them locking in current tuition?
Are they definitely going to a specific institution?
And does that college have ability to lock in current tuition?
If answer to either of those is "No", then what are you really asking?

Will having liquid cash affect financial aid?
Whether it's invested in stocks, bonds, or cash under the mattress, all of them are assets that count toward expected family contribution.


Is it better for them money to be in my name or theirs?
Most likely answer:
Your parent's name.

Then yours (it can be in a 529 or elsewhere)

Then the student's name.

(Assuming they're dependents of yours, 20% of their assets are expected to go to college costs, while only 12% of your assets are expected to go to college costs.)

BTW: you're pulling $70K out of home equity (which is not counted as an asset for FAFSA) and putting it into a regular investment account (which is counted as an asset for FAFSA)
That doesn't seem like a prudent move to me.
If I were in your shoes, I'd probably arrange for a HELOC if I know cash is going to be tight. Sure it'll be an adjustable rate - but the rate is very low right now and probably will be pretty low for the next 5 years - and I'm *assuming* that it's something that's short-term

Is it better for them money to be in my name or theirs?
If it is in the youngest kids name now then it won't effect the Fafsa for the older kids. Later if it is in the older kids name then it won't effect the fafsa for the younger kids.

I want to refinance and take $70K out for each of them before the rates go up which i think they will by next year.

I've never been a fan of using my house to pay for other things, and would not be inclined to borrow from the house to pay for college. If you do decide to do that, however, I would not refinance now to have money sitting there for several years on which I am paying interest. I'd prefer doing a HELOC where I could take out the money as I needed it, and potentially need to borrow less and pay less interest. As this is needed in the short-term, I would not be inclined to be paying for it over the full course of the mortgage, and would prefer to be able to retire this borrowing as soon as possible.

Also, would your kids be borrowing as well? It seems to me that if loans are needed, then they should be paying at least part of that since it is for their education.

Should i put this money in a short term investment account or park it in a 529 for each of them locking in current tuition?

I vote neither. This is money you will have borrowed and that you cannot afford to lose as the need is very short-term. I would be keeping it in CDs or even money market funds. Even with the low interest rates of those accounts, it would still guarantee that you have the principal available when you need it. To me, it would be the worst situation where you have borrowed the money against the house, and then it loses value so you don't have what you were counting on having.

I actually moved my kids' college money to cash about 4 years prior to needing it, which was good as they graduated in 2009 when the market had tanked, but their college money was sitting in a money market account collecting interest. I just paid the last tuition payment, and it was very nice not to have to do the mad scramble because the college money had lost value.

As far as parking it in a 529 to lock in current tuition, I think you are confused unless you have a very different type of 529. I've never seen one that was attached to a particular college and locked in the tuition price. I've only seen them at brokerages, and as such, they are generally subject to market ups and downs. I might increase my contributions to the 529 for the youngest, but unless you get some tax savings on your 529 (I do not in my state), then I wouldn't bother. But I doubt this is locking in any sort of tuition rate, unless perhaps you are mixing up the terms here.

Will having liquid cash affect financial aid?

Yes, liquid assets are included when figuring financial aid, but I believe the house is not counted on the FAFSA, although it could be counted by private schools that go beyond the FAFSA. This again argues for leaving the money in the house, and using an HELOC if you insist on using your house to fund the kids' education.

Is it better for them money to be in my name or theirs?

For several reasons, the money is better in your name than in theirs. First, students are expected to use much more of their assets to pay for their education than parents, so their assets count more when determining financial aid, and you actually are better off in that case with the assets in your name.

Second, if the assets are in their names, then the money BELONGS to them and they get to spend it any way they want such as on a nice sports car instead of paying for college, regardless of your intent. You cannot tell them how to spend their money, and this is something you probably want to consider long and hard before putting significant money in their names.

And last, you will have gift tax issues if you give each of them all of that money all at once, although realistically you won't owe gift tax, but it will reduce your lifetime exemption and will effect them later when they might inherit assets from you. That said, you and your wife could each gift money to each child, and so that increases how much you can give them.

I'd think long and hard about this plan if I were you as it is not one that I would be doing, but at least you need to be aware of the various pitfalls and issues.

Some comments on 529s, separate from the original question.

Should i put this money in a short term investment account or park it in a 529 for each of them locking in current tuition?

I vote neither. This is money you will have borrowed and that you cannot afford to lose as the need is very short-term. I would be keeping it in CDs or even money market funds. Even with the low interest rates of those accounts, it would still guarantee that you have the principal available when you need it.

Some state 529s have FDIC insured options. And some have state income tax advantages with no minimum holding periods. This means that even when the kid is in college, for some states you can get FDIC insurance and a guaranteed gain of whatever the state income tax benefit is. You could put money in today, take it out tomorrow to pay for college and get a nice benefit.

As far as parking it in a 529 to lock in current tuition, I think you are confused unless you have a very different type of 529.

Many states have 529 prepaid tuition plans. The various state plans have lots of different details about what schools they cover and what they give you if you go to a school not covered by the plan.

I don't know how prepaid tuition plans are treated by FAFSA.

From http://www.finaid.org/savings/529plans.phtml
"Prepaid tuition plans are college savings plans that are guaranteed to increase in value at the same rate as college tuition.

The main benefit of these plans is that they allow a student's parents to lock in tuition at current rates, offering peace of mind. The plans' simplicity is also attractive and most offer a better rate of return on an investment than bank savings accounts and certificates of deposit. The plans also involve no risk to principal, and often are guaranteed by the full faith and credit of the state."

spinning:

<<<As far as parking it in a 529 to lock in current tuition, I think you are confused unless you have a very different type of 529.>>>

"Many states have 529 prepaid tuition plans. The various state plans have lots of different details about what schools they cover and what they give you if you go to a school not covered by the plan."

Probably not many.

This 2011 articlw list about 10-12 --- http://www.investopedia.com/financial-edge/0311/the-last-sta...

"The states that still offer prepaid tuition include Virginia, Maryland, Massachusetts, Mississippi, Florida and Washington. These states guarantee their prepaid plans. Michigan, Nevada, Illinois, Pennsylvania and Texas also offer prepaid tuition plans, but without any guarantee." [and Texas is not open to new enrollment]

Read more: http://www.investopedia.com/financial-edge/0311/the-last-sta...

"It is important to note, however, that prepaid plans are often only of value if you are absolutely certain your child will attend an in-state school. While most of the plans do allow funds to be used for out-of-state college tuition, there is often an accompanying penalty, either in the form of a fee or weighted payment based on your state's tuition rates."

Read more: http://www.investopedia.com/financial-edge/0311/the-last-sta...

I don't know how prepaid tuition plans are treated by FAFSA.

Nor do I.

I do not beleive that you ever mentioned your state, so I suggest some research is in order to see whether you even have a pre-paid tutition option.

Regards, JAFO

2002 Suumary Chart:

http://www.highereducation.org/reports/losing_ground/knapp_p...

See also:
http://www.bankrate.com/finance/college-finance/some-state-p...

http://seattletimes.com/html/localnews/2018204150_get14m.htm...

http://www.axa-equitable.com/plan/education/529-plans/529-vs...

"The federal government treats prepaid tuition plans the same as college savings plans for financial aid purposes. These plans are reported on the federal aid application as an asset of the parent, if the parent is the account owner, and assessed at a rate of 5.6 percent (they're not reported at all if the account owner is someone else, for example, a grandparent [other than the student]). Any distributions (withdrawals) from the plan that are used to pay the beneficiary's qualified education expenses are not counted as either parent or student income."

Id.

"Regarding institutional aid (aid distributed by colleges from their own endowments), most colleges treat both college savings plans and prepaid tuition plans as parental assets and withdrawals as student income."

Id.

Regards, JAFO

Probably not many.

Thanks for the update. I haven't looked into this in years, and it looks like many states have cancelled their prepaid plans. This is probably because tuition costs rose much faster than investments and it was a losing proposition for the states.

If it is in the youngest kids name now then it won't effect the Fafsa for the older kids. Later if it is in the older kids name then it won't effect the fafsa for the younger kids.

This would seem to suggest gifting money to the youngest to reduce the value of the parents savings, then paying for the older child's tuition with it, then gifting the graduate to pay for the younger. But the younger is not allowed to make a gift in that manner, right? In other words, you can benefit from one of these - but not both. And while giving money to the younger will reduce the amount of cash available for the elder's tuition, but the younger will just end up paying a bigger portion of their own tuition to make up for it. I don't see much of a benefit.

But the younger is not allowed to make a gift in that manner, right?

And you're asserting they aren't allowed because...???

IMO it certainly seems a bit shady - possibly fraudulant about whose money is whose w.r.t. statements made on the FAFSA.
But assuming they are really gifts, and the youngest could do anything he wanted with the money, I don't think there's any reason he couldn't pay part of older sibling's college bill...

JMO - but if it's possible, I'd go with giving the money to the grandparents and they can even pay the college directly (so no gift tax implications for them)

JMO - but if it's possible, I'd go with giving the money to the grandparents and they can even pay the college directly (so no gift tax implications for them)

This is a terrible idea, IMHO. There can be gifting issues but more importantly, once the money is someone else's, they can do whatever they want with it. Consider death and remarriage and what that brings to the table. However, should grandparents choose to provide a 529 for a grandchild, there are estate benefits there. But it is the owner of the 529 who determines and can change the beneficiary.

For anyone considering 529s, be sure to look at the ownership information - all of it and the manner in which the beneficiary can be changed.

Also, if trying to play games with ownership among siblings, be sure to check out majority age for financial transactions in your state.


As always, this is worth what you paid for it.

once the money is someone else's, they can do whatever they want with it.
Absolutely true.
And what you think they'd do would be a strong factor in if it's possible

Consider death and remarriage and what that brings to the table.
Within 5-7 years? Not something I'd be especially concerned about. My (admittedly limited) observations is that it's usually a number of years before a spouse starts dating after a death, much less remarries.

Here's some data on remarriage after death of spouse -
http://www.ncbi.nlm.nih.gov/pubmed/8807029

My observation has men remarrying pretty fast - like within 24 months after the death of their wife.

You might also be surprised how fast life can change.

Within 5-7 years? Not something I'd be especially concerned about. My (admittedly limited) observations is that it's usually a number of years before a spouse starts dating after a death, much less remarries

My dad remarried 1 year and 2 weeks after my mother passed away. I know others who did similar things.

And I wouldn't want possible college money tied up in someone's estate needing to be settled because of death.

There are also other issues besides death and remarriage. What happens if the grandparents get sued and have a huge judgement against them? That money is now included as part of their assets and could have to be used for such a judgement. What happens if the grandparents need catastrophic medical care or nursing home care? There are just too many things out of people's control for making this a good plan.

And, of course, with gift tax limitations, the gifts would have to be given over several years to come in below those limits.

This just feels like too much finagling to me, and my experience is that those sorts of things get too complicated too fast and tend to fall apart.

Once again, I would think long and hard before doing any of these sorts of gyrations. There's just too much risk for my tastes for something unforeseen to cause the whole thing to fall apart. And that's not something I would be willing to do with college money, but that's just me.

And I wouldn't want possible college money tied up in someone's estate needing to be settled because of death.

Good call.

When my dad's mom died, g-pa remarried relatively quickly. I don't remember the exact time frame, but it was just a few years (at most). The woman was...well, let's just say that dad and I had no idea why he would have chosen her. She forced g-pa to sell his paid-off home, get a new home (with mortgage) which ate up what little savings he had so he had to go back to work (at age 70-ish).

No, don't try to shuffle kids' college money among relatives, playing games with taxes and financial aid rules. It could easily turn around and bite you in ass, frankly.

1poorguy (not a guru, but wouldn't even consider this sort of thing to be a viable option)

...well, let's just say that dad and I had no idea why he would have chosen her.

I watched Dad go from fiscally savvy to a knee jerk reactionary as he aged, making huge financial decisions almost as a whim. We are our own worst enemies as we grow older. If the grandparents die of old age, it is likely that their personality will be much different at the end from their younger years. The Taking Care of Parents board is filled with these tales.

IP

One thing to keep in mind is that in cash out refinances only the interest on $100K will be tax deductible.

Depending on how big your mortgage payment is it might make more sense to try to get your mortgage paid off to free up your cash flow instead of adding a large mortgage payment into the mix.