It's just February, but college financial aid officers are already working to determine grants for the school year coming this fall.

It's just February, but college financial aid officers are already working to determine grants for the school year coming this fall.

If you have children you plan on sending to college, how will your savings and investments affect their chances of getting financial aid?

The answer depends on how much money you have and where you keep it. Most colleges base their aid calculations on the Free Application for Federal Student Aid, which counts up to 5.64 percent of certain parent-owned assets in determining federal or state aid. FAFSA counts up to 20 percent of a child’s assets, such as a Uniform Gifts to Minors Act or Uniform Transfer to Minors Act account.

So, what parent-owned assets are counted when determining a student's need for financial aid? They include savings and checking accounts, non-retirement investment accounts and other types of assets. You do not have to report retirement accounts — such as traditional or Roth IRAs, 401(k)s and pensions — on the FAFSA. However, if you start taking withdrawals from these accounts, the withdrawals must be reported on the FAFSA as student income for the year in which transactions occurred — and these withdrawals could affect your child’s financial aid package the following year.

A 529 plan is one popular college-savings vehicle. If you own a 529 plan, you will need to report it on FAFSA as a parent-owned asset. But when you take withdrawals from the 529 plan, they won’t be counted as parent or student income on FAFSA, and they won’t incur federal income taxes, provided the money is used for qualified higher education expenses. (If you don't use the money for these expenses, you'll be taxed and potentially penalized by 10 percent on the earnings.)

Because a 529 plan is counted as a parental asset on FAFSA, some people ask grandparents to own a 529 plan. But while the value of an intact grandparent-controlled 529 plan will be excluded from FAFSA, withdrawals themselves will be counted as untaxed income to the student on the following year's FAFSA, and this money could certainly affect aid decisions.

At least a year before your first child heads to college, you may want to contact the financial aid office at a local school to ask questions about FAFSA, scholarships, loans and other aspects of assistance. Since most colleges and universities follow similar rules regarding financial aid, you should be able to get some helpful answers, no matter where your child goes to school.

Of course, even with careful planning, your student may not qualify for financial aid. If this is the case, consider other strategies for paying for college. But keep this in mind:  It's best to develop a savings strategy for both college savings and one's own retirement goals. 

So, study the financial aid rules, consider investing in college-funding vehicles such as 529 plans, and do whatever else you can to help get your kids through school.

But don’t forget about your own needs — because they are important, too. 

Joe Faulk is a financial adviser.