No. of Recommendations: 0
Dear TMF:
I started a custodian account for my niece when she was born in December '94, with education in mind. Now I hear and read that such an account could prevent her from receiving financial aid, which she likely will need. How can I resolve such an issue ?
Some relevant facts: the account now has $4000. and it probably will receive about $800. to $1000. per year. It is in New Perspective mutual fund.
Thanks very much.
Print the post Back To Top
No. of Recommendations: 0
For good info on financial aid, go to www.finaid.org Why do you think she will need financial aid with the seed money you've given her ? I think the who-ha about college costs is a little out of hand. That money would pay for an in-state education at a 4-yr institution in Colorado even if you had it in CDs. If you want to send her to Harvard, it's a different story. If you want the money to pay for college, leave it where it is. Since it's already in her name, you can't change much unless you want to pay for music lessons, camps or private school to get rid of it. The financial aid rules will probably change a couple of times before she's 18 so my advice is play it straight. Also, the aid pendulum is currently swinging toward merit and away from need so you might be better encouraging her learning and not wrrying about the custodial fund.IMHO, always.
Print the post Back To Top
No. of Recommendations: 0
Greetings, Conifer, and welcome.

<<I started a custodian account for my niece when she was born in December '94, with education in mind. Now I hear and read that such an account could prevent her from receiving financial aid, which she likely will need. How can I resolve such an issue ?
Some relevant facts: the account now has $4000. and it probably will receive about $800. to $1000. per year. It is in New Perspective mutual fund.>>

With the money that's currently in the account, nothing. By law, that sum must be used for the exclusive benefit of the child. In most states, the child comes into full control of the account at age 18. Students are expected to use up to 35% of their assets each year for schooling in determinations for federal aid/grant/loan programs. Hence, a child with substantial assets may very well discover he or she will NOT qualify for such a program. Parents have a much lower limit, somewhere around 6% of assets.

IMHO, if you are concerned with a child qualifying for financial aid, then future contributions should be into your own or a parent's account so they remain out of the child's name. If the child doesn't own the asset, it won't be counted against that child in aid determination.

Regards….Pixy

Print the post Back To Top
No. of Recommendations: 0
I started a custodian account for my niece when she was born in December '94, with education in mind. Now I hear and read that such an account could prevent her from receiving financial aid, which she likely will need. How can I resolve such an issue ?
Some relevant facts: the account now has $4000. and it probably will receive about $800. to $1000. per year. It is in New Perspective mutual fund.


As you can see, there's a mix of opinions on the financial aid situation. I don't know that I'd be that comfortable with the notion that the amount in this account will easily pay for college. Over a recent stretch the cost of college has increased at twice the rate of inflation. That won't continue forever, but it hasn't stopped yet. On the issue of reducing the amount of aid available, some people say you shouldn't worry because most of the aid is in the form of loans anyway, but at least under current law you're in better shape there if you keep the assets out of your niece's name (which means not using a custodial account).

Pixy mentions one of the most serious problems with a custodial account: the minor gains control at an early age, usually 18. How would you feel if she took the money you so patiently put aside for her college education and used it to buy equipment for her boyfriend's rock band? There are other concerns about using custodial accounts, too. Have you thought about where the money would go if your niece were to die? Not back to you!

There's a section of my web site dealing with custodial accounts at http://www.fairmark.com/custacct/index.htm. Be sure to read the third page, dealing with disadvantages . . .

Kaye Thomas, author
Fairmark Press Tax Guide for Investors
http://www.fairmark.com
Print the post Back To Top
No. of Recommendations: 0
<<As you can see, there's a mix of opinions on the financial aid situation. I don't know that I'd be that comfortable with the notion that the amount in this account will easily pay for college. >>

My opinion comes from producing a report on tuition & fees at public institutions for a 15-state commission of Western states, from doing institutional research as a career for more than 15 years and as a parent of 3 children, the oldest of whom is starting her senior year of high school. A different opinion than yours perhaps, but not uninformed. I was also not talking about paying for 4 years at Harvard.
Print the post Back To Top