FAFSA Online Secret: Sell Bad Investments

For both the student and the parents, the FAFSA asks about your investments and their net worth. If you are investing and you happened to have bought a real stinker (say, Lucent from 1999 - 2002) and you lost a ton of money... well, it's not a good thing per se, but you can use it to offset other investments' capital gains and up to $3,000 of income.

Ideally, you want the net worth of any investments to come out to a big ol' zero without actually being a zero.

For the purposes of the FAFSA, investments include real estate (do not include the home you live in), trust funds, UGMA and UTMA accounts, money market funds, mutual funds, certificates of deposit, stocks, stock options, bonds, other securities, Coverdell savings accounts, 529 college savings plans, the refund value of 529 state prepaid tuition plans, installment and land sale contracts (including mortgages held), commodities, etc.

For more information about reporting education savings plans, call 1-800-433-3243. Investment value means the current balance or market value of these investments as of today. Investment debt means only those debts that are related to the investments.

Investments do not include the home you live in, the value of life insurance, retirement plans (pension funds, annuities, non-education IRAs, Keogh plans, etc.) or cash, savings, and checking accounts already reported in questions 43 and 87. There's no need to sell off any under performers in these categories solely for financial aid purposes. (please consult a certified financial planner to see whether you should unload these for tax or other purposes)

Best Advice

Sell off bad investments, take the loss, and reap the tax benefit of the loss as well as having the investment (and whatever net worth it had) off the books.

Important Reminder

You must unload any bad investments prior to the end of the previous tax year! If you wanted to take the loss and deduction in 2015, you would need to complete the sale prior to December 31, 2014.

More Resources:

FAFSA Online Secret: Little Johnny has no money.

Learn more about FAFSA Dependency Status or take our FAFSA dependency quiz to determine your status.