The truth of the matter? There is no one out there that is willing to tell you where to “stash the cash.” That is, without getting paid. There are plenty of so-called college financial aid advisors selling all kinds of products for parents and students to put their money in, but they basically only have one thing in mind when you meet with them: How much commission will they make.

I am very weary of products that claim to help with tuition such as the 529 plans and other state-sponsored Tuition Assistance Programs. Although I have read many times that the money used from these accounts to pay tuition costs does not disqualify you for aid, I have called and talked to many financial aid officers in the past few years and they all seem to say the same thing, and that is basically that you need to put the asset on the financial aid forms and a determination will be made when all of the forms are filed.

What is the way I read into that? “YES,” it will be counted against you. And with college-financial-aid-info.com database of what colleges give in meeting need and the ratio of how much comes in “free money” (grants and scholarships) and how much comes in “self help” (work study and loans), when parents get their student’s financial aid package, it is obvious that these kind of investments do disqualify you for aid. They only way we can come to this conclusion, is to compare aid packages with similar families with similar circumstances excluding the college savings plans. It really can’t get any more scientific than that. The financial aid officers at colleges can determine your need any way they want to when they are awarding their own money.

I am not saying that they are discriminatory on a personal basis, but I am saying that if you show assets, it most likely will count against you.

Now, to first explain, everybody is different and has different situations, but if you show me a family with similar circumstances such as the same number in family, same income, same assets, same home equity, etc., I can show you two totally different EFC’s with tens of thousands of dollars separating them. The reason is that family “A” did not take steps to protect assets and shelter home equity and family “B” did their homework and safeguarded all equity and assets allowing for a much lower EFC affording them more financial aid.

What is the secret? There are many different accounts that you can transfer assets into that bulletproof you from the financial aid formulas. We use a highly specialized guaranteed annuity that was designed with the college financial aid process in mind that not only eliminates the money from the formulas, but gets an average 6% return. Not all annuities are created equal, so you must be careful and know the differences because one will not count in the formulas while a similar looking annuity will.

A good example of what I am explaining happened this year: A client with two high school children a year apart received over $645,000 in an insurance settlement. Obviously, with that kind of asset on paper they were not going to receive any aid. After I spoke to them, I showed them that by transferring the money into a financial aid eligible account, their EFC went from over $60,000 down to an affordable $12,000. Their student applied and was accepted to a private university that has a price tag of over $42,000 with the second child applying for the 2010-2011 school year to a similar costing universitry as this paragraph is being written. That’s a $240,000+ savings for that family plus they still have the asset and it is gaining interest at about 6.3% this year.

Now, if we add this all up, not only did the family save the $240,000 in tuition costs but they also have that money working for them. I see it as a $480,000 swing of events-not counting the interest the money is making.

The downside to our account strategy is: If you take the money out before age 59 ½, there is a 10% penalty on the gain ONLY. So, that is to say that if you transfer money into this account, and over, say a 5 year period, your account grows by $20,000, you will pay a penalty of only $2,000 to the IRS. That’s a pretty good trade off considering the money that you saved.

The only other drawback is the surrender charge. Although we only use accounts that offer a 10% withdrawal of funds per year, if you were to cash out within the time frame that the account was set up for, (we use a 5,7, or 10 year account depending on family circumstances) there could be surrender charges. Families must be aware of any provisions in the account that restrict removal of funds. That is why I would only use an expert in the college aid field that has your interests in mind first.

For more information on the subject or to find out how you can bulletproof your portfolio, you can visit: http://www.college-financial-aid-info.com

Thanks again, Joe. I would like to write about the home equity myths and misconceptions that are out there circulating next time. A parent just told me these two yesterday: Myth #1: Our guidance counselor and/or visiting college representative told us at our high school college night that home equity doesn’t count in the formulas- and Myth #2- The FAFSA doesn’t ask for the equity in your home so it doesn’t count in determining your EFC. And this misconception that I hear from time to time- Myth#3: There is no way to eliminate home equity from the formulas without spending it.

And telling parents to fund their 401(k) is a huge misconception as well. All retirement contributions are added back into the mix for the “base year” and any contributions thereafter. Check out college-financial-aid-info.com There are just too many misconceptions and myths out there. Oh, and the money that the child made and put into an IRA? Wrong again. That too will be added back into the mix. You really are misinformed.

Note: This Site “scraped” my post, ran it to a foreign language and back to English and published it. But they were kind enough to send me a pingback.