We’ll be filling out the FAFSA for the first time in Jan 2016. In 2015 I will be getting a lump-sum payment of back vacation pay which will come to about $13K. It’s going to raise our gross income by more than 10% for 2015. How can we avoid this having a big negative impact on financial aid? Should I ask the company to hold off paying me until 2016? Then it will still be a problem, but at least it won’t be in the the initial filing year.
I might consider putting it most of it straight into a ROTH IRA if that might work, but I don’t know if that would make a difference. Any other ideas?
If putting it into the Roth IRA takes it out of your AGI on the 1040 form than that would work. I don’t know if it does or doesn’t. Pushing it into 2016 is a sure fire way to make sure your AGI for this year doesn’t ballon. Doing this will probably save you $2K - $3K particularly if you are at around $120K annual income level. Minimizing income this year is very important
If you do nothing and save the money, it is both income and an asset for FAFSA.
If you are eligible to put some or all of it (depending on AGI and your age and your spouse’s age, if you have a spouse) into a Roth IRA it is still income but the portion in a Roth is not an asset for FAFSA.
You can also ask for a professional judgment for one year, showing them that the income was unusual for that year. It probably won’t make that much difference if you are talking about just the fAFSA, as you’ll get the same amount of Pell grant for $100k or $113 - NOTHING! At particular school it might make a small difference in the need award, or in California it might make a difference in eligibility (I don’t know the cut offs).
Thanks for the replies. As we visit colleges this summer I’m going to run this by a couple of financial aid officers too, to get their thoughts.
Can you have the pay-out be split…half in Dec and half in Jan? Do you have a debt that it can go towards to improve your cash-flow situation?
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I’m assuming that our (very) low-six-figure income would disqualify us from need-based aid, no matter what other expenses our family may have at the time. (DD2 won’t be in college until DD1 is a senior.) What I’m hearing is that we need to look elsewhere for the resources to make her dream come true.
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From your other posts, you have a small amount in college savings that needs to go to two kids. You’ve indicated that you can’t contribute much more than that.
Last year, you indicated that your EFC is $25k, and that’s unaffordable.
Exactly how much can you contribute each year?
Before you waste time and money, and get your Dd’s hopes up, please find out if it’s even possible for these schools to be affordable.
Have you run the NPCs for these schools?
Please include a couple of schools that FOR SURE will give your DD large merit for your stats. Those can be your back ups in case the other schools don’t work out.
What are your DD’s stats?
We definitely have debt, and that’s what we were planning to use it for until I realized we possibly shouldn’t even take it this year. It would improve our cash flow a little, sure, but not a whole lot. The question is how much would it harm our (her) potential for financial aid.
It’s not all that easy to figure out what we can afford. As far as money coming out of our current income, $10- 12K/year is what we’re planning on. We live in NJ with the crazy property taxes, and have another child in high school. So that’s about the most we figure we can contribute from cash each year.
But there’s also the 529 I mentioned before which now has about $10K in it for this daughter. And there are funds in an account that my stepmother set up–not sure if that’s even considered an asset; we have to figure out how it’s registered, etc. That also won’t be more than about $10K at best. (Stepmom also has money in trust for me–my late father’s retirement accounts. I have no idea how that impacts my net worth for this purpose, nor do I have any idea how much it is. She’s pretty cagey.)
DD is in an academically advanced program where she takes all AP or Honors classes. GPA in her junior year was 4.1 (she got her very first C this year, in AP US History). SAT combined 1760 (640 math, 560 reading/writing), ACT 24; standardized testing is obviously a weakness; she’ll be taking the SAT again in the fall.
She’s an athlete planning to play soccer, so a school that wants her on the team will be sure to help out more. Div 1 is not out of the question but we’re certainly not counting on athletic money. Major is undecided.
Thanks!
Can you take half in Dec and half in Jan and pay down debt? If you do it this way, your income increase will only be $6500 per year. Since you can’t afford your EFC, it may not make much difference if it goes up a bit.
It appears that for your family to come up with $1000 a month from the family income to put towards college ($10k-12k per year), you have to get your debt payments down…otherwise you won’t be able to come up with $1000 a month for 48 straight months…or do I misunderstand? You still have to figure that during those 4 years of college there will be 2-4 unexpected expenses throughout the year.
She has a 1200 M+Cr which I think is higher than her ACT…I think that’s about an ACT 27. I would have her practice THOSE two sections ONLY on the SAT to tweak that up a bit. If she can get to a 1300+, she’ll have more merit options.
There are always test optional schools, but those will likely be unaffordable since they’re going to expect you to pay your EFC.
Try to get more info from cagey step mother on your dad’s retirement accounts which are ‘in trust’ (whatever that means) for you. There could be non-spouse inherited IRA RMD rules.
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There could be non-spouse inherited IRA RMD rules.
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What does that mean? I’ll have more info on these amounts later this year, for sure.
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She has a 1200 M+Cr which I think is higher than her ACT...I think that's about an ACT 27. I would have her practice THOSE two sections ONLY on the SAT to tweak that up a bit. If she can get to a 1300+, she'll have more merit options.
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Great advice. Thanks!
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There are always test optional schools, but those will likely be unaffordable since they're going to expect you to pay your EFC.
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Really? Lots of schools say they are test optional now. Are you saying they don’t give merit aid at all?
And another, very basic question: Does a school’s NPC take merit aid into account? Or is it based on income/assets only?
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There are always test optional schools, but those will likely be unaffordable since they're going to expect you to pay your EFC.
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Really? Lots of schools say they are test optional now. Are you saying they don’t give merit aid at all?
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VERY few TO schools will give merit WITHOUT test scores. They use test scores to “separate the men from the boys” so to speak. Since TO schools tend to admit many kids with high GPAs, they need to use test scores for Down-Selection for merit purposes.
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And another, very basic question: Does a school's NPC take merit aid into account? Or is it based on income/assets only?
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I’m not sure what you’re asking.
If you’re asking if NPC results will show merit awards as well, the answer is …some will and some won’t.
Many schools won’t/can’t include merit offers in their NPC results because they need to look at the applicant pool before deciding merit.
If you’re asking if you get an NPC result that shows - for instance
$60k = COA
$25k = EFC
$35k = need
and that need is met by:
$27k institutional grant
$ 8k (mix of student loans and work study)
$35k of need is met
THEN…if your child is awarded (for instance) a $15k merit award, are you asking if can you apply that to your EFC?
No. The school will reduce the aid it gives (it will take away either $15k of the grant, or it will take away a mix of grants-loans-work study.
But, I’m not sure if I’m answering your Q.
Keep in mind that the only way that merit reduces your EFC is if the merit award is SO HUGE that it covers all of “need” and then cuts into EFC.
for instance:
$45k = COA
$25k = EFC
$20k = need
So, if in the above situation, if:
$30k = merit award, then
$45k = COA
$30k = merit
$15k is what you’d end up paying.
You need a sit down with Step mom. The titling/tax status of your late father’s retirement accounts is a much bigger deal than your back vacation pay. If you were supposed to be taking out a distribution every year and have not been, there are tax penalties. And shame on the brokerage firm where the account is if they’ve been sending statements to your step mom if you are the beneficiary of the account and presumably are not a minor.
If you are NOT the legal beneficiary, but step mom just has “in her head” that she’s going to share- that’s a different story. But if you were named along with your step mom as the beneficiaries on the paperwork for the retirement accounts, a portion of those fund legally belong to you and you have tax liabilities associated with that money (your dad deferred paying taxes on the money when he put it in the account… so now you have to start paying the taxes when you take the withdrawals which is a complicated formula based on your age…)
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THEN....if your child is awarded (for instance) a $15k merit award, are you asking if can you apply that to your EFC?
No. The school will reduce the aid it gives (it will take away either $15k of the grant, or it will take away a mix of grants-loans-work study.
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Oy vey. Thanks, that’s what I wanted to know. I sure hope that at least one of the schools she loves is not going to see it that way. A $32K EFC does not translate into there being $32K in the household that is available to be spent.
Thanks, @Madison85. Looks like we really need to find out what the situation is. My father died more than 20 years ago and he was 67 at the time. I sure hope I’m not going to have to pay a whole bunch of back taxes!!
Maybe it was money that is in a trust for step mom’s lifetime with a certain payout level and then after she dies it goes to your dad’s children.
Perhaps you can get specific info from her under the reason of need-to-know for financial aid purposes.
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THEN....if your child is awarded (for instance) a $15k merit award, are you asking if can you apply that to your EFC?
No. The school will reduce the aid it gives (it will take away either $15k of the grant, or it will take away a mix of grants-loans-work study.
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Oy vey. Thanks, that’s what I wanted to know. I sure hope that at least one of the schools she loves is not going to see it that way. A $32K EFC does not translate into there being $32K in the household that is available to be spent.
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I wouldn’t count on that.
Merit comes from the Admissions Dept and that is awarded first.
Then, once that’s awarded, the FA office will immediately see that suddenly there is “less need”…so if “need” was calculated to be $35k, but the Admissions Office awards your DD $10k, then the FA office will say, “ok, now there’s only $25k of need that we need to try to cover.”
You’re absolutely right that a $32k EFC does NOT translate into there being $32k in the household available for college. That is why most people can’t afford their EFC and most students in the USA commute to a local school or search out schools that give enough merit to reduce cost to an affordable level.
In the end, it often doesn’t matter since most schools can’t afford to meet need, much less reduce EFC.
Just be sure to have a couple of schools that you know FOR SURE will be affordable so that your DD has a couple of schools to choose from next spring.
And just so you know, lots of kids from families with incomes like yours do end up commuting to their own local community college for two years because of the whole unaffordable EFC thing. If that ends up being what your daughter has to do, she certainly won’t be alone.
Hang in there!
You need to get a lot more information about that trust. First…if you are the beneficiary of this, you need to know the value of it. Depending on the structure of the trust, it is possible that your share of it is an asset for financial aid purposes.
Ok…you have $10,000 per year you can contribute. There are two college savings accounts totally $20,000 for this student…that is $5000 a year. Your daughter can take out a loan for $5500 her freshman year.
So…right there, you have $20,500 for freshman year. If you can contribute $12,000, it’s $22500. Are any of the public universities in NJ within that price point?