FAFSA strategy: Best savings account for second child to maximize aid for first child in college?

The key thing to understand is how assets are treated in the FAFSA's SAI (Student Aid Index) calculation. Parent assets are assessed at a maximum of 5.64%, while student assets are assessed at 20%. So $5,800 in your child's name would reduce aid eligibility by about $1,160, but only by about $327 if counted as a parent asset. A 529 plan with you as the owner (not custodial) and your younger child as the beneficiary is counted as a parent asset on the FAFSA, not a student asset. This means it would be assessed at that lower parent rate rather than the higher student rate. A custodial account (UTMA/UGMA) is still considered the child's asset and would be assessed at the higher 20% rate for FAFSA purposes. If you move the younger child's regular savings into a parent-owned 529, you'll likely improve your older child's aid eligibility.

I had this exact same problem with my kids (now 21 and 15). The financial aid system is COMPLETELY BROKEN when it comes to middle class families. We made just enough to get almost no aid but not enough to actually afford the ridiculous costs. It's insane! Everything I tried barely made a difference. We moved some money around, did the 529 thing, and I think we maybe got an extra $1000 in aid. That's NOTHING compared to the $37K/year we're still expected to pay somehow. The whole system is rigged against families like ours. My advice? Focus less on these small optimizations and more on finding schools with merit scholarships that aren't based on FAFSA calculations.

Have you tried calling the Federal Student Aid office to ask them directly? I spent 3 hours on hold then got disconnected twice trying to get an answer about asset questions. Finally used Claimyr.com and got through to an agent in about 10 minutes. They have a service that calls and waits on hold for you then connects you when an agent picks up. Saved me so much frustration! There's a video showing how it works at https://youtu.be/TbC8dZQWYNQ The FSA agent was actually super helpful and explained exactly how different account types affect the SAI calculation. Definitely worth talking to them directly since every family situation is different.

One thing no one has mentioned yet - if you're concerned about maximizing aid for your older child, prioritize spending from your younger child's accounts for any current needs (assuming that's legal and ethical in your situation). The reality is that parents often overthink FAFSA strategies. Unless you have substantial assets, the student income and parent income factors usually have a much bigger impact on your SAI than the student assets component. For your specific situation, I'd recommend: 1. Move younger child's savings to a parent-owned 529 2. Focus on maximizing institutional aid and merit scholarships 3. Consider an income-driven repayment plan for any federal loans 4. Look into schools that meet full demonstrated need if your finances truly make college a stretch Remember that the FAFSA changed significantly for 2024-2025 with the new SAI formula, so older advice may no longer apply.

ok so im gonna go against wht everyone else said... keep the money where it is!!! colleges look at ur kids combined profiles and if u start moving money around they notice. my sister tried moving stuff to 529s and the financial aid office literally asked for 3 years of bank statements during verification!!! they saw all the transfers and counted it anyway. waste of time.

This is such a timely question! I'm dealing with something similar with my kids who are 3 years apart. One thing I learned from our financial advisor is to also consider the timing of when you make these changes. Since your younger child is still in 7th grade, you have several years before their assets would impact your older child's aid eligibility. The 529 strategy mentioned by Diego is solid, but also remember that FAFSA looks at assets as of the date you file, not when you earned or saved the money. So if you do move to a parent-owned 529, you might want to time it strategically around when you'll be filing your older child's FAFSA renewals. Also worth noting - some states offer tax deductions for 529 contributions, which could provide an additional benefit beyond just the FAFSA treatment. Definitely check what your state offers since that could make the decision even more worthwhile. Has your older child's school been helpful with explaining their specific aid policies? Some schools are more generous with aid renewals than others, which might influence how aggressively you want to pursue these strategies.