Financial Aid and Home Equity: Part II

In yesterday’s college blog post, I wrote about a dad who is wondering if he should take a CPA’s  advice and hide his home equity from colleges in an annuity. If you didn’t read the post, here it is:
Dubious Financial Aid Advice: Hiding Home Equity
After reading my post, Todd Weaver, a college consultant at Strategies for College, Inc., in Massachusetts offered another excellent reason why parents should not try this stunt. Beyond being unethical, it wouldn’t work. Here is Weaver’s comment:
Another Perspective on Home Equity and Financial Aid
Hear! Hear! Lynn.
Your response mirrors what I tell my clients, verbatim. I wanted to add that most “college financial planners” do not realize (or more likely, do not advise their clients) that the very schools that look at home equity, are those that use the CSS/Financial Aid Profile, which has a question asking about non-qualified annuities.
Regarding the annuity, question PA-120 (parent assets) on the CSS Profile (generally for the private, liberal arts colleges and universities) asks an applicant to list any non-qualified annuities.
Definitions of non-qualified annuity:
• An Annuity purchased with after-tax dollars that is not part of a tax-qualified retirement plan. Money paid into a non-qualified annuity is not tax deductible.
• A type of annuity that has no contribution limit and no required minimum distributions at age 70 1/2 (unlike qualified). It can be funded with after-tax dollars from any source and is available to any investor.
Therefore, if money is moved from home equity into an annuity, it is required to be on the CSS Profile and other institutional financial aid forms that some colleges may require. So a client will have moved an asset that is assessed at a maximum of 5.64% in the financial aid formulas, to another asset that will be assessed at the same amount. Only they will have paid a nice commission to the annuity provider in the process.
Hey Todd, thanks for putting a stake into the heart of this financial-aid tactic!

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  1. I wouldnt trust this site. Respectable companies such as Allianz and many respectable financial aid organizations all state that non-qualified plans of the parent are only counted if distributions are taken. If your not receiving any income from them they dont count.

  2. I spoke with a college financial planner. He says that although the CSS asks for non-qualified retirement annuities that it is not used in the calculation of the EFC by CSS due to Federal law and that most schools do not look behind the EFC to see the raw data reported to CSS (which would include the non-qualified annuity information that I would be reporting).
    I would be buying the annuity with cash savings and I do not consider that to be unethical, just as I do not consider maxing out my IRA contribution to be unethical. Nor would it be unethical to pay off my mortgage with my savings if my child was looking at FAFSA only schools. I will not lie about my assets but I do not consider it wrong to position them advantageously. I have very little in the way of retirement savings but I do have a lot of cash and stocks (enough so that the 5.64% of assets will have a large impact on my EFC and savings) and 5 kids to put through college.

    1. HI Robert,
      I would not trust the “college financial planner” who gave you advice about non qualified annuities. He is no doubt an insurance agent wanting to sell you annuities to get a commission.
      Lynn O’Shaughnessy