This could affect fafsa forms when applying for

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the asset of the parent or grandparent who funds it. This could affect FAFSA forms when applying for financial aid, but only 5.6% of parental assets are considered available for college funding while 20% of student-owned assets are considered available for college funding (Links to an external site.)Links to an external site. . Prior to the tax overhaul bill enacted by Congress in late 2017, a 529 plan could only be used to fund college expenses. After the bill, a 529 plan can be used to pay for the same institutions that are available to a Coverdell account (college and pre-college expenses). This nuance may replace Coverdells with 529 plans, but for now, both are available options. 529 Pre-Paid Tuition Plan A cousin of the 529 plan is the 529 Pre-Paid Tuition Plan . Traditional 529 plans are hosted by states, but anyone can invest in them. Pre-Paid Tuition Plans are entirely state-based. If someone lives in Ohio, then they will need to buy into the state of Ohio's Pre-Paid Tuition Plan. They have the same contribution rules as a traditional 529, but the contributions buy tuition "credits" that can be redeemed at in-state
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schools in the state where the plan is registered. Unlike traditional 529 plans, room & board and required supplies are excluded for payment. Only tuition is included. This is best for risk-averse investors who do not want the investment risk of a 529 plan that can invest in mutual funds in pursuit of amplifying the account balance with market performance. There is no investment risk involved with pre- paying for tuition units. Just like with the traditional 529 plan, it is possible to change beneficiaries if funds are not used by the intended beneficiary (student). The big disadvantage of a pre-paid tuition plan is that students will be limited to attending universities in only the state in which the "credits" were purchased. UGMA Some investors decide to operate outside of an education savings account and establish a custodial account. One such type of custodial account is a Uniform Gift to Minors Act (UGMA) account. Unlike a 529 plan, the beneficiary for a UGMA account cannot be changed. UGMA accounts can own most traditional financial assets like mutual funds, individual stocks, and individual bonds. The account is formally owned by the minor and any capital gains earned are subject to taxation at the minor's tax rate. Contributions to a UGMA account are limited by annual gifting limits (like a 529 plan), but they are not tax deductible. The minor cannot access the account for distributions until they are age 18-21 depending upon the relevant state law of majority. The parent or grandparent who gifted the money can access distributions at any time up until the minor reaches their age of majority. These have less tax appeal than 529 Plans, which are really the most popular college savings instrument.
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  • Spring '14
  • VOSS,JAMESA
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