How can I legally maximize my FAFSA financial aid eligibility?

FAFSA eligibility is affected most by income, much more than by assets, so the biggest legal planning opportunities usually involve timing and asset placement.

For a high school junior, pay close attention to the FAFSA “base year.” If your family has flexibility, avoiding one-time taxable events during that base year, like large capital gains, big retirement withdrawals, or converting too much money to a Roth, can help.

Parent assets are assessed at a much lower rate than student assets, so it is generally better for assets to be in a parent’s name rather than the student’s. Money in a student-owned brokerage or UGMA/UTMA account can hurt aid more than money held by a parent.

Retirement accounts are not reported as FAFSA assets, so families sometimes prioritize saving there instead of in taxable nonretirement accounts. The family home is also not reported on FAFSA.

A parent-owned 529 plan for the student is usually reported as a parent asset, which is generally favorable. Student-owned 529 plans are also typically treated similarly on FAFSA now, but parent ownership is still often the cleaner setup.

Try not to move reportable assets into the student’s name before filing. Also be careful with gifts or distributions that create taxable income, because income usually has a bigger impact than assets.

If your family’s financial situation drops after the tax year used on FAFSA, such as job loss, reduced hours, high medical bills, or another major change, contact each college’s financial aid office and ask for a professional judgment review.

One important caution: some colleges also require the CSS Profile, and that form may count home equity, small business value, and noncustodial parent information. So a strategy that helps FAFSA may not help at every school.