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Medical Student FAFSA 529 Question

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  • Medical Student FAFSA 529 Question

    Hey everyone,

    I was recently accepted into medical school and am in the process of applying for the FAFSA and institutional scholarships to help cover the costs of school. I have been lucky enough to have worked 2 years post graduation (~50k/year) and been able to save ~30k as well as having approximately ~30k in a UTMA account that I now have control over. I do not have to report my parents income since I am considered an independent, but I know I have to report my savings and UTMA account since they are non-retirement accounts. In my research however, I found out that 529 accounts do not have to reported on the FAFSA if the funds are used for the educational expenses.

    My question is this: Would it be worthwhile for me to transfer my savings and the UTMA account in a 529 account before submitting the FAFSA in order to potentially qualify for more financial aid? (as a side note, I will be going to school in Texas and the 529 account offers no incentive for state tax reduction)

    I can't tell if this is a good idea, or if I am missing something big that would make this plan not worth it.

  • #2
    I’m not an expert but I’ve attended seminars on fafsa and remember 529 money does count so I’d do more research if I were you

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    • #3
      Originally posted by TexasTransplant View Post
      I found out that 529 accounts do not have to reported on the FAFSA if the funds are used for the educational expenses.

      My question is this: Would it be worthwhile for me to transfer my savings and the UTMA account in a 529 account before submitting the FAFSA in order to potentially qualify for more financial aid? (as a side note, I will be going to school in Texas and the 529 account offers no incentive for state tax reduction).
      The first statement is not true for FAFSA asset reporting of 529 accounts owned by the parent or student.

      20 U.S. Code § 1087vv - Definitions, (f) Assets, (3) A qualified education benefit shall be considered an asset of—
      (A) the student if the student is an independent student; or
      (B) the parent if the student is a dependent student, regardless of whether the owner of the account is the student or the parent.

      What you may be thinking of, is that earnings from 529 distributions for qualified education expenses are not taxable and along with principal would not be reported on FAFSA.

      Also, you can not just rollover assets from a taxable or UTMA account to a 529. Only cash contributions are allowed to a 529. You would have to sell any assets and any capital gains would be taxable.

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