HELP! I thought I had done my due diligence and built a solid financial plan for our family... but the more I learn about money, the more I realize there's an entirely new thing to worry about every Tuesday.
My husband and I are in our late 30s. We're living comfortably, but we're still paying off our own student loans, saving for retirement, and raising two young kids. We both came from modest means and are trying to give our children a better financial head start than we had.
Here's what we've done so far: I opened 529s for both kids. Our state offers matching grants, so we contribute $100 a month to each account to max out the match. I also opened custodial brokerage accounts for any birthday or holiday money they receive. And we have a HYSA in our names earmarked for future expenses like summer camp, a first car, or whatever random activity costs $4,000 by the time they're teenagers.
I thought we were crushing it... until I learned that custodial brokerage accounts count as the child's asset on financial aid applications and can reduce their eligibility for aid.
Now I'm wondering if I've accidentally been sabotaging my own children with responsible financial planning. What's actually the smartest way to build wealth for your kids without accidentally making college more expensive?
Ok first I need you to step away from Google. This is exactly what happens when financially responsible people spend too much time researching. You start out trying to optimize one thing and suddenly you're convinced you've ruined your child's future because of an account you opened with nothing but love and a Vanguard login.
You have not. Bc can we just acknowledge what you've already done? You opened 529s. You're getting the state match. You're investing birthday money instead of letting grandma hand over another talking dinosaur that will haunt your house for six months. You're thinking about your kids' financial future while they're still asking someone to wipe their butt.
You're doing amazing sweetie!!! Now let's tweak the strategy.
You're right that custodial brokerage accounts (UTMAs and UGMAs) aren't the most financial aid friendly place to stash money. Assets owned by the student are generally treated less favorably than assets owned by the parent. Basically the FAFSA looks at your kid and goes "oh you have money? Cute. Pay up."
Meanwhile parent owned 529s get MUCH kinder treatment. Which means the account you were most worried about - keep funding it. The custodial account is the one I'd think twice about adding more to going forward.
Here's the slightly annoying part. Once money goes into a custodial account it's legally your child's. You can't just pull it back bc the FAFSA decided to be dramatic.
What you can do is use that money on legitimate expenses that actually benefit your child. Tutoring, a computer for school, extracurriculars, summer programs - basically anything that helps them become a functioning adult instead of someone still asking you to reset their Netflix password at 29.
You can also ask your bank whether moving those assets into a custodial 529 makes sense. It doesn't change who legally owns the money but depending on your situation it may be a better home than leaving it in a taxable custodial brokerage account.
Going forward keep new savings in your name. Love your HYSA. Love your parent owned brokerage account. My rule of thumb is 529 for college. Parent owned accounts for basically everything else. With custodial accounts - use them intentionally, not as the default.
One last thing. Financial aid is basically the tax code's equally confusing cousin. Your income matters, your family size matters, the schools your kids apply to matter. Some colleges even use an entirely different form called the CSS Profile bc apparently one giant financial questionnaire wasn't enough. As college gets closer, spend a few hundred dollars on a fee only financial planner who specializes in college planning. It's one of those rare situations where paying for advice saves you way more than it costs.
But here's what I really want you to hear!! The fact that you're asking this question now means you're already ahead. Generational wealth isn't about making every perfect decision. It's about making good decisions, learning when the rules change, and adjusting before they get expensive.
That's exactly what youre doing!!