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Question for the Money Doctors

Question submitted on Jun 7, 2015.

Question

My daughter is 16, we set up Coveral Education for her since she was little. we stop contribute years ago, currently inside of Coveral education IRA has approx $25K, after we stop contribute to coveral education IRA, we set up 529 for her, now at 529, she has $22k. I hear that coveral education IRA is her assets, and 529 is parents assets, so Coveral education IRA amount will impact her more for her future grant. She has another young brother who is 12 years old only. please let me know which one is better & no tax consequence.
1) I tranfer the coveral education IRA beneficary to the younger brother.
2) I rollover from coveral IRA to 529.- I also hear that if I do that the owner of 529 ( rollver over amount from Coveral IRA) is still my daugther, not parent's asset.
I am not sure if that is correct.
thank you

1)

Answer

According to fafsa.ed.gov, dependent students should report all qualified education savings accounts owned by the parents and/or the dependent student as part of the parental assets.  Therefore, as long as your daughter can be considered your dependent for tax and financial aid purposes, both the Coverdell IRA and the 529 accounts will be considered parental assets.  The accounts will be weighted at a significantly lower rate than if they were student assets.

There is no need to change the beneficiary or roll balances from one account to another.  The accounts are already in the most favorable position for determining need-based financial aid.


For additional information visit http://www.360financialliteracy.org/

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