By Sabrina Karl

Most Americans with a college-bound student will be well-served by completing the FAFSA, the Free Application for Federal Student Aid. Yet some families mistakenly think that because they have a lot of assets, it’s pointless because their family won’t qualify for aid.

However, assets are not an especially critical factor in the calculations, and many assets don’t get counted at all. For instance, assets in a retirement account are not factored into FAFSA math, nor is any equity in your primary home. Assets from a family business are also ignored if the business is at least 50% family-owned and employs fewer than 100 workers.

The common assets that do count are bank accounts, funds or assets held in taxable investment accounts, and equity in real estate that isn’t your primary residence.

But even when assets count, if they belong to the parents, their impact is not enormous. Only 5.64% of the asset amount will reduce financial aid. So for each $100,000 in countable assets, financial aid would be reduced by $5,640.

Compare that to assets held in a student’s name, which are assessed at 20% rather than 5.64%. This includes balances in a student-named UGMA/UTMA account. For this reason, a 529 plan held by a parent custodian is a smart move, as it will count as parental assets instead of student assets.

The much bigger FAFSA factor is income. Student income, including any earned interest, dividends, or capital gains, but subtracting a FAFSA allowance amount, is assessed as 50% being available to pay for college, while parental income is counted as 22% to 47%, rising as income increases.

In the end, it makes sense for most American families to complete the FAFSA, and as close to October 1 each year as possible. You may be more eligible than you think.