Summer 2004
Should a child’s savings be kept in the parent’s name or the child’s?
If you save for college in a child’s name, the funds will be taxed at a lower rate because he has a lower income. But his college can tap up to 35% of his assets under the federal financial aid formula, possibly cutting the amount of aid he can get. And if the funds are saved for him under the Uniform Gifts to Minors Act, the parent will have no control over the money once he comes of age.
If you save in your own name, paying taxes at your higher rate, the college can tap only up to 12% of your assets, excluding your house. So your child might qualify for more aid. It’s a good idea to establish a 529 College Savings Plan, in which funds accumulate tax-free and withdrawals are not taxed as long as the money pays for college. Colleges count 529-plan savings as parental assets under financial aid formulas.
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