Gyroscopic Investing

I'm looking into using the PP as a strategy for saving for my kids' college.  I've got >15 yrs to work with, but a 529 plan doesn't seem doable given the options.  Anyone have any thoughts on how to implement a tax-deferred college savings plan using the PP?

You could use a Coverdell Education Savings Account.  I use this strategy for my son's college savings.  I use ETFs for gold (GLD and SGOL), stocks (VTI), and long term bonds (TLT) in the coverdell account and then I use I-Bonds for the cash component.  You can set up a coverdell account at most discount brokerages.  There are only two issues with this strategy in my opinion.  1) You can only put $2,000/year into a coverdell and 2) there are penalties if the funds aren't used for college (the same as a 529 plan I believe).

I am happy with this strategy for now, but I would love to find out how to create a Roth IRA in my son's name.  That way there wouldn't be a penalty if he doesn't use it for college.  Does anyone know if it is possible to set up a Roth IRA for a young child?

Thought about Coverdell, but I have a lump sum that I want to dump in all at once (and it exceeds the $2K limit).  I currently use the Illinois 529 plan which uses a mix of Vanguard index funds.  I guess I could keep that and divide it equally into VTSMX, VBMFX, and money market.  Then do the gold portion outside the 529.  (But then I lose the benefit of the LT bond piece since I am going with VBMFX).

I was researching PP options for 529 plans a few weeks ago.  I found an iShares 529 plan which has TLT, SHY and so on.  Unfortunately, it is not a direct sold plan, and I don't have an advisor.

HBFan wrote:I am happy with this strategy for now, but I would love to find out how to create a Roth IRA in my son's name.  That way there wouldn't be a penalty if he doesn't use it for college.  Does anyone know if it is possible to set up a Roth IRA for a young child?

He has to have earned income to contribute to a Roth IRA, unless of course he's married to somebody who does have earned income.

Another approach to the problem at hand is to use the child's college account as more tax advantaged space for your overall portfolio rather than sectioning it away as its own fund.  Then when the time comes, draw down the funds from the college savings account first.  Cash and stocks and possibly the bonds should be possible readily enough.

Alternatively, you could use the college savings account as part of your variable portfolio and just be prepared to draw the money down from other accounts if necessary.

pplooker wrote:Another approach to the problem at hand is to use the child's college account as more tax advantaged space for your overall portfolio rather than sectioning it away as its own fund.  Then when the time comes, draw down the funds from the college savings account first.  Cash and stocks and possibly the bonds should be possible readily enough.

Alternatively, you could use the college savings account as part of your variable portfolio and just be prepared to draw the money down from other accounts if necessary.

To be clear, a Coverdell account must be used for the benefit of the named beneficiary, and not for you, the donor or responsible individual. Whereas a 529 savings plan places no restrictions on your ability, outside of tax and penalty consequences, to use a withdrawal for whatever purpose you choose. Oddly enough, you can also change the beneficiary of the Coverdell account at any time to another family member under age 30. It's best to talk to your tax professional for issues like these as property ownership are decided by State laws.

Maybe you can max out your purchase of I and EE shares which can be used tax free for education and rebalance your cash portion in your tax differed accounts to stocks/bonds gold. 

jgab wrote: I'm looking into using the PP as a strategy for saving for my kids' college.  I've got >15 yrs to work with, but a 529 plan doesn't seem doable given the options.  Anyone have any thoughts on how to implement a tax-deferred college savings plan using the PP?

Apparently, you can use your own (and/or spouse's) IRA accounts if you choose:

When it comes to school costs, the IRS says no penalty will be assessed as long as your IRA money goes toward qualified schooling costs for yourself, your spouse or your children or grandkids.

You must make sure the eligible student attends an IRS-approved institution. This is any college, university, vocational school or other post-secondary facility that meets federal student aid program requirements. The school can be public, private or nonprofit as long as it is accredited.

Once enrolled, you can use retirement money to pay tuition and fees and buy books, supplies and other required equipment. Expenses for special-needs students also count. And if the student is enrolled at least half-time, room and board also meet IRS expense muster.

Source: http://www.bankrate.com/finance/money-g ... als-1.aspx

Just a thought, but perhaps a self directed IRA would be an option. I haven't looked into this for a college plan, but I do know that Equity Trust is one of the most respected companies providing a self directed IRA. Very cool stuff in my opinion.

http://www.trustetc.com/

Just something to consider.

-b

Take the following with a grain of salt, as I am by no means an expert on this topic, but here is my experience/observations/beliefs about the cost/funding of college for your kids.

For those who haven't lived it (either as a student or parent of a student) in the last few decades, things have gotten unbelievably out of hand.  College pricing is a giant racket.  Like every other program associated with the federal government, costs are through the roof.  Undergrad merit based money of any substance is almost non-existent (not intending to brag but just to give you some reference, one of my kids is a top 5% SAT scorer and the other is a top 1% with a perfect score (twice) in math and we could not find any substantial merit based money for any high ranked colleges most of which are 40-50k a year for tuition, room and board).

Like buying a car, colleges jack up the sticker price (this was a term given to me by a recruiter for one of the schools we visited in which he said something like, "if you are paying sticker price for college then you're doing something wrong").  This price gouging comes from, I believe, the fact that the federal government is involved in every college application through what is known as the FAFSA (Free Application for Federal Student Aid ).  Every school requires it before they will grace you with their "financial aid package".

With this wonderful form, you basically divulge all the assets you have and all the money that is in your kids name.  The things that count against you the most are the money your kids have in their name and the non-retirement assets you have other than your primary residence.  In our lovely scenario, my spouse and I lived well within our means for over 20 years, lived in a modest house, saved and invested and built up a comfortable net worth, taught our kids to do good in school, work hard, and save and invest (they both had jobs at a local grocery store while in high school and saved 50% of everything they made).  And when college day arrived, our neighbors, who earn as much as we do but live paycheck to paycheck, payed 1/3 of what we did simply because we didn't blow our money on other things (not to mention that our kids academic credentials were better but from the money perspective that made no difference).  So, in the end we are going to pay about 300k for our kids schooling while our neighbors are going to only pay about 100k for the same product.  Big difference, no?

When I shared my frustration about this with one school's financial aid person, I was scolded and told, "you have the money, just pay for your kids' education."  Funny thing is, I couldn't agree more, but that statement should apply to everyone with reasonable means, not just the ones who were most responsible with building their wealth (and just maybe that would bring down the "sticker price" a bit).  But, I digress....

In summary, the above posts got me thinking about the IRA as a vehicle for college savings (I was only vaguely aware of this IRA provision since we had other non-sheltered money socked away and consequently wouldn't want to use IRA money for college funding).  If the info provided above is true, then the IRA route seems to me to be the clear way to go (I would first verify what kind of rules/limitations are in place for using the money this way and don't forget the risk that the rules may very well be different by the time your kids are ready to go to college).  If you are lucky enough to get some merit based money or your kids end up not going to college then you just use the IRA for retirement, otherwise you had a nice tax sheltered investment vehicle to use for college savings.  And do not leave any money in the kids name, you can be guaranteed that it will ALL count against your EFC (expected family contribution) no matter how big or how small.  And, if you have money/assets outside of any IRA type accounts, most of that will count against your EFC as well.  In a nutshell, the system rewards irresponsibility.

MeDebtFree, thanks for taking the time to share your experiences.  I'm still a long way off from my own children heading off to college but I share all the frustrations and concerns you just named.

Is there anything you would have done differently if you could have started over when your child was born?

I'd also like to say thanks to Mebebtfree for sharing your experience.  It's revolting, but unfortunately reality nonetheless.  In a way, the college tuition issue resembles Parkinson's Law: http://en.wikipedia.org/wiki/Parkinson's_Law

Instead of establishing a competitive price first, the price expands to meet available resources.  The more resources there are, the higher the price becomes.  I have no doubt if there were a Federal program giving out $100K to every high school student this year for college tuition, your kids would be paying $500K instead of $300K.

One point I'd like to make regarding my earlier IRA reference is that before taking withdrawls, confirm with a qualified accountant.  Second, beware how much you are willing to commit to your children's tuition out of your retirement funds.  Striking a prudent balance is a tricky proposition.

MeDebtFree is exactly right as to the scenario.  If you take a student like that and step from the top 10-15 colleges down into the 25-50 range, you can definitely get merit money.  A lot at some, but that's for another discussion.  Yes, if you do everything right, you pay the price.  It's horrible, really.

To the allocation question, I viewed our 529 money as part of our overall allocation.  I didn't try to break it into its own separate AA.  Since it was tax sheltered, and overall we lacked tax sheltered space, ours were all bonds.  It happened to work out well in isolation, but that was just a bonus.  The overall AA is what mattered to me.

Lone Wolf wrote: MeDebtFree, thanks for taking the time to share your experiences.  I'm still a long way off from my own children heading off to college but I share all the frustrations and concerns you just named.

Is there anything you would have done differently if you could have started over when your child was born?

Glad to share.  This forum is one of the few where substantive people make substantive comments and it motivates me to participate when I feel I have something worthy to share.

And I'm glad you asked.  I was going to include some of that as part of my first post but it was already getting too lengthy.

My spouse and I were really PO'd at the whole experience.  We talked about it quite a bit and some of this may sound a little spastic but here are some of the things we thought we might have done in retrospect.

- Probably would have still saved and invested the way we did but about 4 years before the oldest one was college age, we would have:

- Started gifting substantial sums to some of our family members (of course the ones we could trust, we are kind of lucky in that respect) believing we would get it all back (I know, I know, there are all kinds of things that could go wrong with this idea but we think we would have done it anyway).

- Would have put in our 30k in ground swimming pool sooner rather than waiting til we did and/or put an addition on the house (might as well have enjoyed it ourselves rather than give it to the school, again we believe in paying our own way but things are just way out of hand).

- Bought some other big ticket items that didn't require reporting on the FAFSA and would hopefully not depreciate too much in value over a 5-6 year period so we could re-sell them (classic corvette, stuff like that...note that rental properties and 2nd homes, etc.,  count against you).

- Acquire gold bullion over time and literally bury it and some cash in the ground somewhere to be unearthed at a later date (but this probably crosses the ethical/legal lines of FAFSA reporting).

I'm kind of embarrassed even talking about these things, starts to sound kind of desperate and/or psycho, but to us we really feel like we got screwed.  And even though it is still a little ways out yet, we are stating to think about social security and what the future "needs testing" might be like (I am guessing there will be a form like the FAFSA).

The best solution would be for our government/system to level the playing field and reward those who "do and contribute" rather than penalize them (my complaining is now officially closed).

I am guessing others on this forum have better ideas than this.  Please share!

Something that was eye-opening to me is just how big the difference was between what you had to pay and what your neighbor had to pay.  I'd certainly heard that a worker\saver gets screwed come tuition time but I'd no idea that someone who literally lives next door and makes as much money as you do would get so much aid.  Did your neighbor just have no assets whatsoever?

I've heard the advice that you do want to have all of your consumer debt paid down as having that additional debt doesn't benefit you on the application.  Getting rid of both the debt and the cash you use to pay that debt help, which makes sense.  So "MeDebtFree" seems like a good idea!

Another big one I hear is to not have very many assets in your child's name.  I feel bad for people that are trying to do the right thing and teach their children how to manage their own finances... only to get the big screwgie on financial aid applications!

I assume that buying a really large primary residence (with cash) would benefit you a lot on the application as well.  But then you're getting into situations where the risk you are taking potentially outweighs the potential rewards (perhaps by a lot!)

MeDebtFree wrote:- Acquire gold bullion over time and literally bury it and some cash in the ground somewhere to be unearthed at a later date (but this probably crosses the ethical/legal lines of FAFSA reporting).

I don't think that I fully understand how gold must be reported on FAFSA.  For example, I am 100% sure that you'd need to report your shares of GLD, IAU, etc.  But what about the jangling necklace of Krugerrands and shark teeth that I wear with me everywhere I go?  What about my solid-gold toilet?  Because essentially, this is the "strategy" your neighbor employed (without realizing it.)  He converted his liquid assets into "stuff".  In his case, it happened to be stuff that was illiquid and depreciated rapidly in value.  It's kind of like you buying the swimming pool, except in this case you'd have the chance to sell it later if you wanted.

I also wonder about taking a leave of absence from work to enjoy leisure time during a child's college years.  In that sense, you are getting more value for the unpaid time via the increased financial aid.  Leisure time is a very valuable thing but hard to afford.  Could this be a way to make it help "pay off" a bit more?

And in the end, of course, you always have to step back and make sure that the solutions are not worse than the problem of paying "sticker price" for college!

MeDebtFree wrote:I'm kind of embarrassed even talking about these things, starts to sound kind of desperate and/or psycho, but to us we really feel like we got screwed.  And even though it is still a little ways out yet, we are stating to think about social security and what the future "needs testing" might be like (I am guessing there will be a form like the FAFSA).

You could think of it as a lesson (although an expensive one) on why we are taking a big chance if we rely on Social Security to be there for us.  My wife and I are operating under the assumption that we will get absolutely nothing from it.  What we do get will just be gravy.  It seems like the only prudent way to plan for retirement.

And you should never feel guilty about investigating all legal means of protecting your assets.  They represent your labor and irreplaceable time.  None of us are getting any younger and time we spend earning money is time we do not spend with our loved ones.

Did your neighbor just have no assets whatsoever?

The only assets they really had were IRAs/401ks and their primary residence; and it is my understanding that these things count little to none against your expected family contribution.  It is your liquid non-retirement cash that is the killer followed by non-retirement assets like rental properties or second homes.

I assume that buying a really large primary residence (with cash) would benefit you a lot on the application as well.  But then you're getting into situations where the risk you are taking potentially outweighs the potential rewards (perhaps by a lot!)

I think this is a valid strategy and should be considered.

I don't think that I fully understand how gold must be reported on FAFSA.

We didn't own any gold at the time so we didn't have to consider it but the questions on the FAFSA were definitely geared toward finding out what kind of assets you had that were not part of retirement/tax-sheltered accounts.

I also wonder about taking a leave of absence from work to enjoy leisure time during a child's college years.  In that sense, you are getting more value for the unpaid time via the increased financial aid.  Leisure time is a very valuable thing but hard to afford.  Could this be a way to make it help "pay off" a bit more?

I think you kind of need to do it in advance of their college years.  You start filling out these forms when they are seniors in high school (and need to provide updated forms each year) and may need to drawdown some assets prior to that.  Biggest downside I see to this idea is that these years are probably some of the prime earning years for most working class people such as myself.

Note that (I think) that most schools require (or at least heavily frown upon you not filling out) the FAFSA even if you believe you don't qualify.  Your acceptance and/or financial aid package generally get delayed otherwise  It's a nice way for our government to get a nice tidy little consolidated accounting update of how much net worth you have.

And in the end, of course, you always have to step back and make sure that the solutions are not worse than the problem of paying "sticker price" for college!

Certainly!

My wife and I are operating under the assumption that we will get absolutely nothing from it.  What we do get will just be gravy.  It seems like the only prudent way to plan for retirement.

Us too.  I was lucky enough to have some financial mentors early on in my career who warned me that the trend indicated that SS was a risk and not to count on it.  They also warned me about corporate pensions, at least the lofty amount projections.  So, we planned our lives on not getting either and figured they would just be the icing on the cake if we got them.  But, by planning around them, it seems more likely that we won't get them, at least the SS portion (again, reward irresponsibility).

And you should never feel guilty about investigating all legal means of protecting your assets.  They represent your labor and irreplaceable time.  None of us are getting any younger and time we spend earning money is time we do not spend with our loved ones.

Agreed and appreciated.  Thanks.

Being a young tax accountant, I have been trying to weigh how much to put into a roth vs taxable accounts (since you can pull out roth principal after 5 years, it's quite flexible, but obviously not as much as a taxble account).

This even further indicates to me that a roth IRA or roth 401(k) (careful, often your Roth 401(k) plan doesn't allow distributions, even though the tax code does with limitations) are excellent tools for lowering your tax bill.  If your retirement accounts are much less "counted" when applying for FAFSA, but by the time your kids are ready for college you've got $180,000 that you can pull out of your Roth IRA, you've got one great situation... you could even go on a reduced schedule at your job for a couple years (your kids senior year of highschool... maybe you want to enjoy every basketball game and band concert) and really milk it.

Where do I get the $180,000??  Well if when you have a kid, and you and your spouse can afford to put the $5,000 each roth limitations in for 18 years, then you will have $180,000 of removable principal when theyr'e 18 years old.  This is money NOT getting hit by taxes OR FAFSA, and you can withdraw it tax & penalty free to give you flexibility.

That's one reason the young people on this board should be putting as much into a roth as they can afford.  If done early on, it creates a somewhat liquid fund for you to dip into, further eliminating your need for taxable investments.

Gumby wrote: To be clear, a Coverdell account must be used for the benefit of the named beneficiary, and not for you, the donor or responsible individual. Whereas a 529 savings plan places no restrictions on your ability, outside of tax and penalty consequences, to use a withdrawal for whatever purpose you choose. Oddly enough, you can also change the beneficiary of the Coverdell account at any time to another family member under age 30. It's best to talk to your tax professional for issues like these as property ownership are decided by State laws.

A valid point. It's just that ultimately all these funds flow through the First National Bank of Dad.

If Dad taps the college savings for $50 and the taxable savings for $50, he's still taking $100 out of the First National Bank of Dad.  He does of course have to be mindful of the issues you're bringing up and this quote is very good advice.

MeDebtFree wrote:...This price gouging comes from, I believe, the fact that the federal government is involved in every college application through what is known as the FAFSA (Free Application for Federal Student Aid ).  Every school requires it before they will grace you with their "financial aid package".

With this wonderful form, you basically divulge all the assets you have and all the money that is in your kids name.  The things that count against you the most are the money your kids have in their name and the non-retirement assets you have other than your primary residence.  In our lovely scenario, my spouse and I lived well within our means for over 20 years, lived in a modest house, saved and invested and built up a comfortable net worth, taught our kids to do good in school, work hard, and save and invest (they both had jobs at a local grocery store while in high school and saved 50% of everything they made).  And when college day arrived, our neighbors, who earn as much as we do but live paycheck to paycheck, payed 1/3 of what we did simply because we didn't blow our money on other things (not to mention that our kids academic credentials were better but from the money perspective that made no difference).  So, in the end we are going to pay about 300k for our kids schooling while our neighbors are going to only pay about 100k for the same product.  Big difference, no?

I just came across an interview from January 2010 with Mark Kantrowitz, "an expert on paying for college and the founder of FinAid.org," who replied to reader-submitted questions supplied by the New York Times about the Free Application for Federal Student Aid.

Here was a very interesting quote from the Q&A session:

Q. Not a question but a comment: the fact that the Fafsa clearly rewards bad behavior is very maddening. Earning a decent wage, and saving penalizes you as opposed to spending and not saving for college. This is America after all and the government will always help the needy and disenfranchised.

I found the Fafsa to be very maddening and disheartening due to the clear bias to those who choose to spend, spend, spend. When you teach your children at an early age to save for college, you are actually hurting their chances to receive financial aid from the same government that you are paying all of your tax money to.

—pwolf

A. The federal need analysis formula is much more heavily weighted toward income than savings. Less than 4 percent of dependent students have any contribution from parent assets included in their expected family contribution. The penalty for parent assets is also rather minimal.

A family that saves will be better off financially than a family that does not save. The savings will not only make it easier to pay for college, but will provide you with more choice.

Nevertheless, your comment illustrates a common misperception that families who spend are better off than families who save. It is partly for this reason that Congress has proposed eliminating all of the asset questions from the Fafsa. (Eliminating these questions will also simplify the Fafsa and make the form much less invasive.)

The Student Aid and Fiscal Responsibility Act of 2009 has already passed the House of Representatives and is still pending in the Senate.

Source: http://thechoice.blogs.nytimes.com/2010 ... -a-part-7/

I don't know enough to claim any expertise, but it sounds like the concept of FAFSA rewarding people for bad behavior is just a myth.

The bill that tried to to remove all of the asset questions from FAFSA passed the House (253 Ayes, 171 Nays, 10 Present/Not Voting), but it was stalled in the Senate — ultimately killing the bill. It's entirely possible that the bill could be re-introduced in the new session of Congress.

The main point to take away from this is that assets appear to not be an important part of the FAFSA equation. Rather, it seems to be heavily based on one's income.

I would stay out of the federal student loan/grant bureaucracy as much as possible.

There are plenty of public institutions that already have a large government subsidy built into the tuition price.

The whole idea of going into debt to receive an education seems like a bad exchange.  I would prefer to live with the parents, go to school close to home, attend public institutions, and basically do anything in my power to avoid starting off my career under a pile of debt.

Life is hard enough without toting around a backpack full of Sallie Mae-shaped rocks.

I feel very fortunate that I received the best of two worlds: college education away from home and relatively low student loans.  I grew up in a very working-class home and my parents helped a small amount with room and board.  They helped a lot by co-signing my student loans and allowing me to pay them back with my own hard-earned dollars.  I doubt I would have appreciated my education as much if it were completely free.

Although I didn't know it at the time, I made a good call by starting at a state school for 3 semesters before transferring to a well known, highly esteemed university to finish my undergrad.  It kept the overall costs pretty low.  Still, I had every bit of the "college experience" by living away from my parents--which I think is highly underrated. 

I don't have kids yet but I wonder about paying for their college costs.  I love the road I traveled for the lessons I learned, but barring any catastrophes, I'll most likely have the means to pay for my kids' education.  I'm playing with the idea of setting aside their education money, then setting up some sort of achievement system.  Perhaps something along the lines of:

Route A: good high school student, no scholarship, I pay $100K total (or some predefined inflation-adjusted target of excellent state university tuition) if GPA stays above 3.0 each semester.

Route B: excellent high school student and/or athlete, partial to full scholarship, I agree to fund their start-up with the saved tuition money.  If they are not inclined to pursue a start-up, donate the money in a trust of some sort to give them a head-start on retirement planning. 

There's always Route C--kid is a derelict with poor grades and/or work ethic.  In which case, I wouldn't pay for anything until they show they won't waste it.  I'm hoping this isn't the option I'm left with.

I'm curious, are there any other folks on this board following a similar strategy to the first two options?  Any thoughts regarding what a child is entitled to?

Wonk wrote: Any thoughts regarding what a child is entitled to?

I think that taking a "matching funds" approach to things can work well.

When I was a kid my Dad would tell me any time I wanted something that if I came up with "x" he would come up with "y".

Sometimes it was 50/50, other times it was 99/1, but I always felt like I had a stake in whatever I was doing, even though I was often receiving an enormous amount of help.

I have three kids.  My six year old son lives a pretty carefree life and isn't too concerned about economics, finance or investing.  When, however, he has his own money to spend (either a gift card or a cash gift), all of the sudden he turns into a keen balancer of value, price, and expected utility and can make pretty sophisticated buying decisions.  When he is simply asking me or my wife to buy him something, however, he reverts to a six year old boy childishly begging for something he happens to want at that moment.  The difference is in one case he is spending "his" money and in another case he is spending someone else's money.

I'm a big fan of giving kids control over some small part of their lives and forcing them to make executive-level management decisions in that area.  I think that in general parents are pleased to help their kids as much as they can, so long as they feel like their help is appreciated and is complementing effort that the child is putting into whatever the project may be.

I don't think anyone is entitled to anything (other than in a contractual setting), but I think we all need help in life and I had a lot of help in getting to where I am and I look forward to helping my kids as they move through life as well.

Q. Not a question but a comment: the fact that the Fafsa clearly rewards bad behavior is very maddening. Earning a decent wage, and saving penalizes you as opposed to spending and not saving for college. This is America after all and the government will always help the needy and disenfranchised.

I found the Fafsa to be very maddening and disheartening due to the clear bias to those who choose to spend, spend, spend. When you teach your children at an early age to save for college, you are actually hurting their chances to receive financial aid from the same government that you are paying all of your tax money to.

—pwolf

A. The federal need analysis formula is much more heavily weighted toward income than savings. Less than 4 percent of dependent students have any contribution from parent assets included in their expected family contribution. The penalty for parent assets is also rather minimal.

A family that saves will be better off financially than a family that does not save. The savings will not only make it easier to pay for college, but will provide you with more choice.

Nevertheless, your comment illustrates a common misperception that families who spend are better off than families who save. It is partly for this reason that Congress has proposed eliminating all of the asset questions from the Fafsa. (Eliminating these questions will also simplify the Fafsa and make the form much less invasive.)

The Student Aid and Fiscal Responsibility Act of 2009 has already passed the House of Representatives and is still pending in the Senate.

Source: http://thechoice.blogs.nytimes.com/2010 ... -a-part-7/

I don't know enough to claim any expertise, but it sounds like the concept of FAFSA rewarding people for bad behavior is just a myth.

I cannot state strongly enough that this was NOT how our personal experience went.  Just for kicks I went to

http://www.finaid.org/calculators/scripts/quickefc.cgi

and put in our info.  When I removed my assets (leaving all other parameters the same), my EFC dropped from over 31k to 9k.  So don't tell me that assets don't mean much.

My spouse is an accountant and met with financial aid admins from several different schools of various size and caliber.  Leaving no stone unturned, my spouse researched the fancy federal formula, asked every question, and evaluated every option.  Assets do count and count in a big way.  End of story.

I am making one assumption, though.  I have saved and invested 50% of everything I ever made since my late teens.  So, I/we have built up a nice little sum which may put us out on some FAFSA curve more than the average Joe.  But I am assuming most people on this board are going to acquire their own little tidy sum and be in basically the same boat we were.

The system penalizes savers.  I can't stress it enough.

Social security will end up doing the same thing.  Heed my warning and plan accordingly.

MediumTex wrote:

Wonk wrote: Any thoughts regarding what a child is entitled to?

I think that taking a "matching funds" approach to things can work well.

When I was a kid my Dad would tell me any time I wanted something that if I came up with "x" he would come up with "y".

Sometimes it was 50/50, other times it was 99/1, but I always felt like I had a stake in whatever I was doing, even though I was often receiving an enormous amount of help.

I have three kids.  My six year old son lives a pretty carefree life and isn't too concerned about economics, finance or investing.  When, however, he has his own money to spend (either a gift card or a cash gift), all of the sudden he turns into a keen balancer of value, price, and expected utility and can make pretty sophisticated buying decisions.  When he is simply asking me or my wife to buy him something, however, he reverts to a six year old boy childishly begging for something he happens to want at that moment.  The difference is in one case he is spending "his" money and in another case he is spending someone else's money.

I'm a big fan of giving kids control over some small part of their lives and forcing them to make executive-level management decisions in that area.  I think that in general parents are pleased to help their kids as much as they can, so long as they feel like their help is appreciated and is complementing effort that the child is putting into whatever the project may be.

I don't think anyone is entitled to anything (other than in a contractual setting), but I think we all need help in life and I had a lot of help in getting to where I am and I look forward to helping my kids as they move through life as well.

We did the matching funds thing, too.  I think it created the right mindset for our kids.  They have very good work ethics and appreciate what they have.

We did one other thing that the liberal-minded among us may object to but we had something called a "stupid tax" where we would enforce small financial penalties for doing stupid things like leaving the milk to spoil in the trunk of the car instead of being mindful enough to bring in ALL the groceries.  These penalties, of course, were minimal (and done in a light-hearted manner) and indirectly the money would make it back to the kids.  But we thought it was a good way to teach awareness, accountability, and responsibility.

MeDebtFree wrote:I cannot state strongly enough that this was NOT how our personal experience went.  Just for kicks I went to

http://www.finaid.org/calculators/scripts/quickefc.cgi

and put in our info.  When I removed my assets (leaving all other parameters the same), my EFC dropped from over 31k to 9k.  So don't tell me that assets don't mean much.

It's not me ...

Here's the explanation of the "myth" from FinAid.org:

Myth #1: Penalty for Savings

Many families mistakenly believe that they are penalized for saving, and that they would be better off if they didn't save. The Federal Need Analysis Methodology does count a portion of the family's assets in determinations of financial need, so a family with more assets will get less need-based aid. However, the federal government does not count all of the assets, just a fraction, so a family that saves for college will have more money left over than a family that does not save for college.

The federal need analysis formula shelters several types of assets. Money in retirement plan accounts is ignored, as is the net worth of the family's home and any small businesses owned and controled by the family. A portion of parent assets is also sheltered by an asset protection allowance based on the age of the older parent. This shelters about $50,000 for the typical family with college-age children (median age 48). As a result, less than 4% of dependent children have any contribution from parent assets.

Money in a dependent child's 529 college savings plan (or other qualified tuition plan) is treated as though it were a parent asset on the Free Application for Federal Student Aid (FAFSA). This is a more favorable treatment than for child assets. Child assets are assessed at a 20% rate while parent assets are assessed according to a bracketed scale with a top bracket of 5.64%. While every $10,000 in a 529 college savings plan may reduce need-based aid eligibility by up to $564, that still leaves you with at least $9,436 more available to pay for college than if you hadn't saved.

Source: http://www.finaid.org/savings/myths.phtml

That explanation suggests that a child's assets have a much bigger affect on aid than a parent's assets do. Is it possible your income level in combination with your children's assets were the main problem?