I'm a single mom with a college-bound son. Will my savings impact financial aid?

I currently have $70K in Vanguard Index 500, and am preparing to begin the college application process. I am a single mother, earning $38K. I have a very bright, athletic and musically talented son. In order to receive the best financial aid, should I spend down this savings, or give it to someone to 'hold'? I own my home. I have an IRA ($80K). We have a 529 with $10K for this son. I don't want to appear unethical, but I want to present ourselves to our advantage, as this is my only nest egg, and I have another son attending college in two years. Thank you so much for any advice you have for me.

First of all, I am very impressed with your ability to save. It is great that you have $80,000 in an IRA and $70,000 in taxable savings -- way to go! Now, on to your question:

I actually would not be at all concerned about "losing" much (if any) of your $70,000. There is no need to give it to someone to "hold" (and doing so would be fraudulent) and you don't need to spend it down (unless you are also carrying credit card debt, in which case, it probably makes sense to get the credit cards paid off). The reason for this is that at your income level, I doubt that any of it would be "taken" for college expenses. That is because most need-analysis formulas shelter $35,000 to $60,000 of parents assets. Even assets above this level are only "assessed" (assumed to be available to help pay college costs) at a rate of 2.4% to 5.6%.

I suggest that you visit the FinAid website to determine what your expected family contribution (EFC) would be given your income and assets. My guess is that it will be very low or possibly zero. WIth an EFC of zero, none of your savings would be considered available to meet college expenses.

You might not know this, but a large number of schools now offer free tuition for students whose family incomes are below a certain level. For example, the following schools offer free tuition to families earning less than the following amounts:

Harvard: $60,000
Dartmouth: $75,000
Northwestern: $55,000
Duke: $60,000
Cornell: $60,000

The FinAid website has a full section on all the colleges that offer these special deals.

Also, be sure that you fill out and submit the Free Application for Federal Student Aid(FAFSA). You need to do this in order to be considered for any financial aid. I generally recommend that all families complete this form, regardless of their income levels. For more tips on how to best qualify for financial aid, visit the maximizing your financial aid section of the FinAid website. Good Luck!