If your family is in the fortunate position of using a professional to do your taxes, plan your retirement, or generally manage your money, you’re likely making smart financial decisions. But while some accountants and financial planners are also experts in college financial aid, not all of them are. And a smart strategy for saving or taxes might actually be a very bad one if you hope to qualify for financial aid.
For example, your advisor might recommend saving money in your child’s name as a smart financial planning strategy. But if you’ll later need financial aid to pay for college, that money will be assessed 20% as opposed to the 5.65% if you’d kept the money in a parent’s name. You’ll end up paying much more than you needed to.
I’m not talking about hiding your money to look less affluent or doing anything to avoid paying your fair share of college. Colleges are wise to all the ways families can try to get around the rules.
But if you found out that your mortgage bill would have been substantially lower if you had saved the down payment in a different account, wouldn’t you wish you’d done it? That’s what it feels like for some parents who put money in their child’s name, often with the intent of using that money to pay for college, who later apply for financial aid and find out the money they saved isn’t going to stretch nearly as far as they’d planned.
Retirement, investing, saving for college—it’s all part of your financial planning. And plenty of professionals can do it all. But don’t assume that yours can. Have a conversation with your accountant or advisor and find out if college financial aid is part of her expertise. A willingness to help fill out the forms does not make someone an expert. A deep knowledge of college savings vehicles like 529 plans, the FAFSA methodology to assess income and assets, the differences between various college loans, and the many terms that are unique to college financial aid—that’s the expertise you’re looking for.