In today’s episode of “College Admissions Real Talk”, Dr. Legatt interviews Sam Mikhail, President/CEO of Financial Strategies Group, and they discuss financial aid and how to save for college.
VO: Welcome to College Admissions Real Talk with Dr. Aviva Legatt, a podcast for students seeking to get admitted to top-tier colleges. Each episode will feature an important tip for your college admission success, delivered with candor and love. If you’ve ever wanted to take a peek inside the mind of a college admissions officer, this is your chance. Have a question? Text Dr. Legatt at 610-222-5762. So, what’s your dream school?
AL: That’s really interesting. So what are some ways in which people inadvertently disqualify themselves for that age, even if they may need it?
SM: So we get a lot of clients that, Let’s say, for example, would buy a 529 plan, which is a very popular 529 college savings plan that a lot of families use. Now, it may or may not be a good idea. I’m not giving specific advice here on this call, obviously, but to make sure that that’s not necessarily the only option to consider financial plans like 529, UMAS, UMAS, Custodial accounts, Kogan accounts, and such are accounts that are considered at a much, much higher calculated rate against the family. That even the money that’s in the parents name. So just understanding that calculation as part of your overall strategy is gonna help. Also, 529 doesn’t guarantee any kind of gains. So you could actually lose money. And if you were in my office in 2008 to half of 2013, you would see that the majority of the people I met had 520 in that were worth less than what they put into the account themselves. Then on top of that, you have penalties to access that money if used for something other than college. So you have to pay some taxes and a penalty on that. And then the schools will assess that at a much, much higher rate. So that’s just an example of things that we’re looking at either 529 UTMA, GMA accounts. And again, 529 is a parent asset versus Aug or UTMA or Custodial cat that’s considered a student asset. So those are things that are very common in our industry.
AL: So it sounds like if you buy a 510, I plan, you should put it in the parent name and not in the child’s name. Is that fair to say?
SM: Well, yeah. So a lot of people think that it’s a misconception out there that 529 are a student asset and are actually considered a parent asset. So 529, even though named for the benefit of a student, is the asset of the adult. And looking at, let’s say, UMA, or, UGMA which is an asset of the student. That’s the other side of the calculation, which calculates about 3.57 times more severely than the parent as itself.
AL: Right. And we’re talking about that calculation. We’re referring to a CSS and expected family contribution for tuition. Correct?
SM: Yeah. To be eligible for any kind of financial aid consideration.
AL: If I have pretty good assets or what I would deem as pretty good assets going to this college process, what should I do about the FAFSA? Should I’ve definitely fill it out no matter what? Should I consider not filling it out? What do you advise there for people who think they might not qualify for aid?
SM: Yeah, that’s a really important question. The way I would answer that is, don’t write yourself off. If you approach the school with those assets. What the school is going to probably say is you probably don’t need any of our money. Why don’t you spend down your money first? And that’s pretty reasonable to understand that. The most important thing to understand about that process is to start early and talk to somebody that’s qualified because it’s not how much money or assets a family has. It’s where those assets are sitting will make all the difference in the world. Just because one family has significant assets and another family has significant assets in the same income, same family size, you might see two very different outcomes as far as financial aid is concerned.
AL: That’s so interesting. Could you walk us through, like a sample scenario of that differential and why the calculation would be different?
SM: Yeah. I mean, first of all, there’s 192 different strategies that we employ, and we look at and I’ll tell you, probably 2 to 7 strategies per client, typically depending on their situation. So I’m going to preface what I’m going to say with the fact that there’s more pitfalls than there are solutions here. So you got to be very careful. Let’s take an example of a client that has a million dollars or 401K and another client that maybe is saving for retirement, but not in a 401K, but in a CD or investment account or something else. Let’s just use the investment account. Both are technically their money sitting in some kind of stock portfolio, one in a 401K, one in an investment account or brokerage account. That’s not a retirement account. Both families would consider those monies to be used in retirement later on, but the colleges are going to count those monies very differently. Once in a qualified retirement account, one is a family that has the money sitting in a 401 K. Many colleges if not all won’t even consider a retirement account as an asset, while other colleges will you have a much better chance of having in a 401K, then you would have it in something other than a retirement account and having it exempted for you.
VO: College Admissions Real Talk is hosted by Aviva Legatt, edited by Stephanie Carlin, and produced by Incontrera Consulting. I’m Caroline Stokes and this has been your daily boost of college admissions insight. Have a question? Text Dr. Legatt at 610-222-5762. For more information on Dr. Legatt and Ivy Insight visit www.ivyinsight.com. And you can pick up Dr. Legatt’s book, “Get Real and Get In”, at major retail outlets across the world. Insight out.