Assets on the FAFSA

Assets are the smallest part of the FAFSA formula, but they are the one element you can still do something about if you're filing the FAFSA this year. Assets are counted at their value on the day you file the FAFSA. Before we go into detail on what is and isn't an asset on the FAFSA, let's start with some general information about how you report your assets on the FAFSA and CSS Profile, and things you might do to reduce the amount of assets you're reporting.

And remember, both parents and students report assets on the FAFSA. Parent assets get more favorable treatment: parent assets only increase your Student Aid Index by 5.64% of their value, whereas student assets increase it by 20% of their value.

How to Report Assets

Before you file the FAFSA, it's helpful to do an inventory of your assets. For most people, that's your bank account, your student's 529, and any taxable investment accounts (not retirement accounts like 401ks and IRAs) you own. If you're filing the CSS Profile, you will be asked about additional assets: all of your kids' 529s, your home's net value, cash value life insurance, nonqualified annuities, ... they even ask for the total of your retirement savings accounts.

You report assets at their value on the day you file the FAFSA, which means you’ll need to look up your account balances just prior to filing. It’s helpful to create a quick spreadsheet ahead of time with a list that you can quickly update and total when the time comes to file.

The FAFSA has several fields into which you enter your assets:

The first box is pretty straightforward: your checking and savings account balances go in here. It's the second one that causes confusion. This field is where you total up all of your assets besides bank accounts into a single number: your student's 529, a vacation home or rental property, your vested RSUs and stock options, your brokerage account. Add it all up and enter the number there.

If you own a business or a farm, its net value goes in the third box. Net value means value minus outstanding debts including current liabilities (payroll, rent, utilities, etc. for the coming year). Note that if you hold a rental property or vacation property in an LLC, it still goes in the Investments section, not the Business and Farm section. And good news: next year small business owners and owners of smaller farms will no longer have to report those as assets.

Really important point: each of these has a pop-up info button that tells you exactly what goes in here. If something is not on the list of what you enter there, or specified as not reported, don't enter it. For example, the info for Current Net Worth of Investments says, among other things, "Investments do not include the home you live in, the value of life insurance, ABLE accounts, retirement plans ... or the value of qualified education benefits or education savings accounts that are for the benefit of the parent’s other children (not the student)."

So How Do I Reduce My Assets?

First and foremost, remember that assets have a nominal impact on your ability to pay for college as calculated by the FAFSA and CSS Profile: every $1,000 in parent assets only increases your SAI by $56 and every $1,000 of student assets increases it by $200. That means two things:

• You should only do things you would do anyway. It doesn't make sense to give your brother $1,000 just to not have to report it, but it does make sense to pay your credit card bill before you file the FAFSA.

• It takes a bit of doing to move the needle on your Student Aid Index: every $10,000 you remove from reportable assets only decreases your SAI by $564. That doesn't mean it's not worth doing, just that it takes some doing.

With that preface, here are some strategies to reduce your assets:

• Choose the right date to file your FAFSA. You'll want to file after you've paid your big bills for the month-- mortgage or rent, credit card, car payment, etc.-- and before your next paycheck, RSU or stock option vesting date or bonus hits.

• Fund your Roth IRA and HSA if you haven't already done so.

• If you haven't maxed out your 401k and have excess cash on hand, increase 401k contributions and spend down the cash to make up the difference in your paycheck. You'll end up maxing out sooner and can replenish the cash at that point.

• Pay big bills you're going to pay anyway. If you make year-end charitable contributions, do them now. Make an additional payment on debts like a car loan or HELOC. Pay your property taxes. Do some holiday shopping in advance.

• If you have multiple children, deposit money into each of their 529s. You do not report siblings' 529 balances on your student's FAFSA. (Note this is only helpful on the FAFSA; the CSS Profile requires you to report all 529s for all your children.)

• If your student is sitting on a bunch of money from their summer job, open a Roth IRA and fund it. Any of their money that's intended for college can go into their 529 where it becomes a parent asset, not a student asset.

• If your student has a UTMA, UGMA or other custodial account, consider selling the assets and transferring the balance to a 529. Note that the sale could result in tax liability and income on a future FAFSA depending on embedded gains in the account; consult your tax advisor before doing this.

You can find a detailed list of what is and isn't an asset on the FAFSA and CSS Profile here.

If you found this helpful, grab a copy of my book How to Pay for College!