Three other people died in the accident, and all medical bills have been paid in full. My idea with the Roth was contributing while his tax liability is essentially 0, letting it grow tax free until retirement, and having a nice start to a nest egg.

Three other people died in the accident, and all medical bills have been paid in full.

Question...are funds in a 529 account weighted more heavily when applying for financial aid, than funds in a Roth IRA? If so...I'd put as much in a Roth IRA as I legally could (must have earned income, etc. etc.). Even if you have no intention whatsoever for using those funds for retirement. You can withdraw the PRINCIPAL amount penalty-free. Put in $10,000, you can withdraw $10,000. Hey, if he has earned income from last year and this year...and if the new Roth IRA limits are $10,500...that's a total of $21,000 he could possibly put into a Roth IRA. And while most of us consider a Roth IRA as consisting of stocks, funds, etc., it can be a wide range of things (from real estate to savings accounts). Since he's looking to use the money in the near future, put it in a savings account, or something that has virtually no risk (and likely a very poor interest rate to boot). So that $21,000 turns into $23,000 by the time he's ready to use it, and he pulls out the full $21,000 (the principal amount). He still has $2,000 in a Roth IRA, not great but also better than nothing. And if having the funds in a Roth IRA helped him to better qualify for financial aid, so much the better (seriously though, this is murky territory that I haven't dealt with for many, many years...do your own research on how money in varying accounts affects financial aid).

Oh, to reiterate the Roth IRA eligibility...you certainly CAN use that money to fund a Roth IRA, but only if you had enough earned income (and meet other eligibility). I.e. if you earned $12,000 last year, spent it all on bills...and your grandparents gifted you $10,500 to put in a Roth IRA, that's perfectly legal. The issue is if you had say, $1,000 in earned income last year, and your grandparents gifted you $10,500 to put in a Roth IRA...can't do it; your earned income was only $1,000, and you can't put more in a Roth IRA than you earned...$1,000 is the max that could be put in a Roth IRA for that year.

As far as federal rules goes, 529's do boost the EFC, thus lowering the amount of aid one is available for. Of course, the school can then go in and say, "they have a 529 and most of the bills are taken care of, so we will delve this aid out to others."

The Roth IRA or any type of retirement account is not seen as assets that are able to pay for a college education. If you withdraw from an IRA, it will be regarded as income for future years.

Last, the OP's BIL would need at least $5k income for 2012 and $5.5k income for 2013 to do the entire $10.5k for both years. Not other combination will get you there.

529's do count as an asset of the student (or parent or grandparent), however, they are treated no worse than any other asset. So it doesn't hurt vs. just keeping the money in cash or whatnot.

But removal of contributions from a Roth IRA doesn't count, right?

The Roth IRA or any type of retirement account is not seen as assets that are able to pay for a college education. If you withdraw from an IRA, it will be regarded as income for future years.

Last, the OP's BIL would need at least $5k income for 2012 and $5.5k income for 2013 to do the entire $10.5k for both years. Not other combination will get you there.

Not quite true. There are 2 things: 1) how the federal gubimint calcs EFC and 2) how the school views it. #1 529's do impact one's EFC. But, it is a small percentage (~5%) opposed to a cash savings account being ~20%. The higher the EFC, the lower your fin aid pkg will be. #2 Just b/c you have a low EFC, doesn't mean the school won't take your 529's into account when deciding how much fin aid to delve out. So, some schools will totally ignore it, or other schools will give you no fin aid if you have saved enough to cover 4 years. Not only does it vary school to school, it can vary student to student within a school.

Another egg-on-face moment...my numbers originally were off due to me being married (though I should have been quoting $11,000 instead of $10,500...). Fixed my post so the numbers make a bit more sense now. $5,000 past years, $5,500 going forward, per person (a married couple can double that).

• 529 owned by the student is treated the same as any account owned by the student, and gets counted 20% towards the EFC.
  
• 529 owned by a parent is treated the same as any account owned by the parent, and gets counted about 6% towards the EFC.
  
• 529 owned by a grandparent is treated the same as any account owned by the grandparent, and gets counted 0% towards the EFC.

It doesn't matter if the student is the beneficiary of the 529, it's still owned by the parent or grandparent, respectively.

This is for federal calculations only; of course the school can do almost anything it wants. But still, are you really saying that a 529 could get treated *worse* than a normal savings account? (For purposes of EFC. Of course there are ways in which it is worse/restricted, i.e. it has to be used for college expenses or you pay a penalty taking it out)

It doesn't matter that much for OPBIL, since either way (529 or normal savings account) the money is in OPBIL's name and counts 20%.

What is EFC?

blah blah blah

I don't think I was saying that all. I was trying to say it gets favorable treatment over other assets in the EFC calculation (lower EFC than if it was cash). Which is sort of true, depending on who has the cash (student or parents)

I didn't think you would be saying that, which is why I was confused.

However, I am about 82% sure that there is such a thing as a 529 that is both owned by and benefits the student. And that such a 529 would could as a student asset and get counted at the 20$ level. I have read more than one article on 529's that warned against that mistake.