Tips To Maximize Financial Aid Eligibility

Tuesday Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.

This is the eleventh hour if your child is applying to college next fall. Here are a few moves before filling out CSS Profile and FAFSA forms to maximize eligibility for financial aid.

1.     Check out your child’s financial aid position at, and/or college websites, and if you can qualify,

2.     Start thinking about moves to maximize your eligibility.

Some of the moves to consider are:

  • Spend down your child’s custodial savings accounts because investment assets in the student’s name are assessed at a 50 percent rate in the expected family contribution formula.
  • Remember, though, that capital gains reported this year might lower next year’s aid eligibility. The income protection allowance for students is $3,750; excess income is figured in that 50 percent contribution formula.
  • Watch out for that ‘kiddie tax.’ This applies to students under the age of 24 who have unearned income of more than $1,900.
  • Have your child move their savings into a 529 college plan. Even though the money would be your child’s, federal law requires it to be counted as an asset of the parent, and therefore assessed at a 5.64 percent rate versus the 20 percent assessment rate on student assets. (NY completely excludes Section 529 assets from eligibility for state funded financial aid.)
  • You can open a 529 college plan and in NY State, receive a tax deduction!
  • Consider opening a 529 plan in the name of younger siblings to remove funds from the parents’ assets. Remember though, you lose control to the child at maturity age, as well as removes your ability to change account beneficiaries in the future.

I would not consider paying down your mortgage or other debts if you might need the funds in the near or intermediate future as the maximum assessment rate on parent assets is 5.64 percent.

I suggest reducing your reportable income, which for some, can be assessed up to 47 percent.

Before taking any aggressive action, please call the office. There may be a number of actions we can take.

And just a few tips:

1.     Tuition not too high? Tuition expenses paid in 2010 for classes that begin in the first three months of 2011 will qualify as a deduction on the 2010 tax return.

2.     Unless Congress sobers up, the American Opportunity Credit will expire on December 31, 2010. This partially refundable credit applies for the first four years of undergraduate education, and is worth up to $2,500 on the first $4,000 of tuition, books, and other required supplies. (Not paying $4,000 this year? See tip #1.)

3.     The Lifetime Learning Credit covers all years of college, including graduate school. This is a non-refundable credit of up to $2,000 (20 percent of tuition and fees on the first $10,000) of expenses. (Not paying $10,000 this year? See tip #1.)

4.     Your 529 Plan Assets can be used for tuition, mandatory fees, books, supplies, and equipment required for enrollment or attendance; certain room-and-board expenses during any academic period the beneficiary is enrolled at least half-time; and certain expenses for a “special needs” student. For 2009 and 2010 only, assets in your account can be used to pay for expenses paid or incurred for the purchase of any computer technology or equipment or Internet access and related services, if such technology, equipment or services are to be used by the Beneficiary and the Beneficiary’s family during any of the years the Beneficiary is enrolled at an eligible educational institution.

Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.