Saving for college: Calm and cool for 17 years, then panic in the home stretch

getting ready for collegeLast month I made myself some promises. I promised that I’d attend the financial aid presentation at my kids’ high school, that I’d delve further into the FAFSA, and that I’d explore other sources of information about financing three college educations at once. I made myself these promises in hopes of alleviating the head-in-the-sand, deer-in-the-headlights paralysis I had inflicted upon myself regarding the whole paying for college issue.

Although I kept all my promises, I must admit that in doing so, I’ve encountered some new issues that make me want to stick my head right back into the proverbial sand!

It all started at the financial aid presentation at the high school last month. The school counselors were joined by representatives from the financial aid office of the local university as well as by a representative from a national financial planning company. All was going swimmingly, with useful information about scholarships, loans, and helpful websites, until I heard these words: “If you’ve been saving for college with a custodial account – that is, an account in yours and your child’s name, but with your child’s social security number attached – this is probably one of the worst ways to save and you should deal with those accounts right away because, although the FAFSA only expects 5.6% of savings from parents, they expect about 20 – 30% of kids’ savings.”

Wait. That’s exactly how we’d been saving for our kids’ college educations for the past twenty years! My parents had set up accounts for the kids, specifically in their names because the advice he had been given was that it was best to save in the kids’ and not the parents’ names because of tax ramifications. And we’d been (fairly) diligently adding to those accounts, assuming that when the time came, we’d take the money out slowly as we’d pay tuition and other college expenses. And now I was hearing that such accounts were “one of the worst ways to save”?

This is not good, I told myself. Not good at all!

After the presentation, I asked the financial advisor what she meant by “deal with” those accounts, and after all the standard disclaimers (“I don’t know your personal situation, so can’t provide specific financial advice”), she mentioned that it’d probably be best to get those accounts out of the kids’ names and into our names ASAP, but certainly before the end of the year, and most definitely before the kids fill out FAFSA applications in January!

Trying not to panic, I called another financial advisor the next day and he reiterated the advice I’d been given the night before: get those accounts out of the kids’ names. So I did. I liquidated the accounts, transferring all funds into our local bank account – in my name, with my own personal tags on three separate accounts, one earmarked for each kid.

For a day or so, I felt pretty good about my decision, but then I realized that all that money would now be considered income for my husband and me – and the tax ramifications to that aren’t very pretty! I’m realizing that, one way or another, moving that money will cost us, whether it’s withdrawing it to pay directly for college or to withdraw it to move it into other accounts. It’s looking like it’s six of one and a half-dozen of the other, since it would have also cost us to have left the money in the kids’ names.

A few days after the presentation at the high school – and after I’d made the transfer of funds – the financial consultant who’d been at the financial aid night called our home and offered a free hour of her time to discuss our situation (and to most certainly try to sell her company’s services). I told her that, based on what I heard at the financial aid night, I already “dealt with” the custodial accounts that had been in our kids’ names. She seemed surprised, but when I asked why she said we’d discuss it when we meet – which will be this afternoon.

So now I’m wondering whether I did the right thing! Should this process really be so difficult? Should I really be feeling so vulnerable, so blind, so scared, and so easily persuaded? Did I do the right thing? I’ll let you know in my next post!


Saving for College