My oldest is now a freshman in HS. I’m preparing ahead.
It seems my family might qualify for the simplified means test. We (I and spouse) grossed 49K in 2016. The catch is that I’m not allowed to use form 1040A because part of our income (about 3K) is a healthcare premium reimbursement from our state, which is tracked in a 1099-MISC form. It’s about 3K per year. 1040A does not allow using 1099-MISC, so I have to use 1040. Otherwise, there is absolutely no reason for me to use the 1040. No capital gains investments, just retirement funds, 529s, some bonds, & bank accts. We have a mortgage but have no tax advantage in itemizing.
Two questions:
Am I “eligible” to use 1040A according to FAFSA if the only reason I use 1040 is because of the 1099-MISC?
If the answer to question 1 is “yes”, then would being eligible really help us qualify for more financial aid, even when our income is unchanged?
Insights appreciated.
If your oldest graduates HS and starts college in 2020 then the FAFSA for 2020/21 will look at 2018 income if the prior prior income rules stay in effect as they are now. Income limits may or may not go up for simplified needs.
If you cannot file a 1040A then you can also qualify if someone in household receives a federal means tested benefit or parent is dislocated worker, combined with the $49,999 income.
I am not familiar with health insurance premium reimbursement. Is there a possibility that you won’t have that in the future?
Did you deduct healthcare expenses as itemized deductions?
The simplified needs test excludes parent and student assets. If you have high balances in savings accounts, maybe you would want to put some of this money into qualified retirement accounts now.
Oh I see you said you didn’t itemize. And only have bonds and 529 as investments, plus bank accounts.
Are you planning to have your oldest apply only to schools that require only FAFSA? Because simplified needs will not apply to CSS profile schools, and they might also look at home equity.
What is your household size? What would your EFC be with your currdnt income, not counting assets?
The FAFSA determines eligibility for Pell grant, maybe state grants. The EFC would have to be under $5,000 now to qualify for anything in Pell. State grant thresholds might be higher.
Any chance you are eligible for free or reduced lunch? That is a means tested benefit that would qualify you for the simplified needs test,along with your income.
But the only benefit to this is it doesn’t count your assets. Do you have huge assets that will affect the fafsa EFC?
The FAFSA simplified needs test uses the MAGI, so your income might be less than the $49k (not such a tight squeeze) and you should talk to a tax expert about whether you can ignore the insurance fund (I doubt it).
However, do you have significant assets that would effect your EFC if they were reported? You (parent) do get an asset allowance based on age, and the corpus of your retirement funds are not included (any contributions made during the tax year are added back in, unless you do qualify for simplified assets). You might be doing financial gymnastics for no gain.
The 1040 has more lines but can accomplish the same thing as the 1040A. It really is a personal preference whether you want to skip over a bunch of lines or not. It will not change your tax bill at all.
Thanks all for ideas. I’m mostly concerned about FAFSA here.
I just did a FAFSA EFC estimate calc online, and it estimated my EFC at $3800, same result whether or not I ticked the “eligible for 1040A” box. So it seems that the fact that we qualify for reduced-price school lunch automatically makes us qualified for simplified needs test. If that’s true, then I really don’t need to worry about the “financial gymnastics” of being eligible for 1040A!
That being said, other than retirement accounts, our assets would be about 30K savings and bonds and 60K in 529s for my 3 kids (my relatives have all helped). If I did CSS also, retirement would be approx 300K and home equity about 100K. So with CSS I assume I would rather quickly deplete the 529s.
If you qualify for reduced lunch, that’s the same benefit as the 1040A. You don’t have to meet all 3 qualifiers (1040A, displaced worker, qualify for a need based program like reduced fee lunch), just one of them. You’re good.
Now, you will need to qualify under the income guidelines, but as I said that’s a MAGI number, not gross income. If you are reducing that $49k income with 401k/IRA contributions or other ‘above the line’ deductions, you should be well under $50k to qualify for simplified assets.
Sometimes the CSS schools just aren’t affordable for a specific situation, and you might be one of those. There are retired parents who have a lot of assets but practically no income and those families have to make a decision about being full pay at elite schools (except they’d get the Pell grant) or getting need based FA from FAFSA only schools.
Yes, twoinanddone, I just realized I wasn’t using AGI but “Total Income”. My AGI is substantially less because of IRA contributions. So it seems even if we make a bit over 50K/year we still can modulate our AGI to under 50K by making IRA contributions. Wow! Now I know how it works!
And if we’re aiming for FAFSA, then there seems to be no reason for us to spend down our assets. If we decided to aim for CSS I suppose we’d have to somehow “liquify” some of our more solid assets (IRAs, 401, home equity). Ouch!
You should not monkey with your IRA or 401K without doing a detailed analysis showing before and after.
I know a LOT of people who make dumb moves with their finances for the sake of financial aid. An extra 3K in financial aid but losing many multiples of that in your retirement account, future appreciation, etc?
Tread very carefully. Any lost ground in your retirement can be tough to recoup.
Honestly, for some of the very elite schools that give a lot of aid, I don’t think your assets, with your low income, would exclude you from financial aid. Stanford meets need for any student with a family income under $125k, and even though it requires CSS, they may not consider those assets if the income qualifies you for full aid.
Don’t scare yourself out of applying to elite schools if your child has the stats to get in. It is sort of the next layer, those that require CSS but don’t meet full need, that will take those assets into consideration and you might get boxed out of financial aid because of the assets.
Stanford guarantees to meet full need for ALL accepted students. For students earning $125,000 or less, I believe the need based aid is very very generous.
But then…getting accepted to Stanford would be the first hurdle.
@twoinanddone that’s great to encourage others to: “applying to elite schools if your child has the stats to get in.”
luv hearing about dreams come true!
@twoinanddone sometimes, the elite schools provide an atmosphere that some only dream about, (and others actually achieve)----
even though others say they “do not care about rankings.” Very ironic, indeed.
