Is it too late to get assets out of my name before filing the FAFSA?

Question

I am high school senior. Over the years, my parents and I have saved some money for my college education. My family and I didn't realize that this could affect my college financial aid. Is it too late to get some/most/all of those assets out of my name account in advance of filing the 2016-2017 FAFSA in order to reduce the assets in my name?

Answer

Financial aid application forms, like the FAFSA (Free Application for Federal Student Aid) and CSS/Financial Aid PROFILE, use a snapshot approach with regard to assets. In other words, the asset valuation is as of the date the FAFSA or CSS/ Financial Aid PROFILE is filed. From a practical perspective, this means the valuation as of the most recent statement prior to the FAFSA or PROFILE filing date, though these days people can also login to their broker’s web site and print out a current valuation.

So, you can make changes involving assets up until the date the FAFSA or PROFILE is filed. The main complication is that some asset moves may involve realizing capital gains, which will be reported as part of adjusted gross income (AGI) on the FAFSA. For example, contributions to a 529 plan must be made in cash, so if your parents are liquidating stocks held in a child’s brokerage account to contribute them to a custodial 529 college savings plan, they may realize capital gains. If so, it may be better to realize such capital gains before the base year upon which the FAFSA bases income. (Currently, this is the prior tax year (2015), but starting in 2017-2018, it will be the prior prior tax year, due to changes recently announced by President Obama.)

Get more advice on the topic of minimizing the impact of assets on financial aid applications.