I will be 59.5 by the time my son starts college so I can draw money from retirement accounts without a
penalty at that time. I do not need to pull money from any annuity that I use to shield assets from the FAFSA.
What is the hole using this strategy to lower EFC?
Since I can pull money from my retirement, the only income
that will register the next year will be the tax I pay on the retirement money and the asset itself, right?
What would be a reason not to do this?
@BelknapPoint could you clarify?
I thought that if this was pretax retirement money, you had to pay tax on any amount you withdraw. You won’t have a penalty in addition, but I believe you have to pay taxes on all of it.
In addition, it will reduce the amount of money IN your retirement accounts…and if you are 59 1/2, it doesn’t give you a long time to replenish the money you with draw.
Nope; OP needs to do that. If he’s looking for advice on a particular income/asset strategy for FAFSA, he needs to better explain what that strategy is.
Will your child go to a school guaranteed to meet need as determined by FAFSA EFC?
If someone is trying to sell you an annuity and claiming it’s a great strategy to reduce your EFC, don’t walk, Run away from that salesperson.
Also is the income/AGI even going to be low enough to result in a FAFSA EFC range that would yield Pell, state grant money?
Are you low income? If not, you’re probably worried about nothing.
FAFSA EFC mostly just determines whose income is low enough for a Pell Grant. Your income would have to be low for that.
Very very few schools give much/any aid based on FAFSA EFC.
And looking for ways to shield money and find loopholes to lower your EFC seems a little… south of ethical.
Many people with good incomes find that “financial gymnastics” ends up getting them nothing more.
Blossom’s rule- if something makes good financial sense for your overall portfolio and wealth management strategy, AND may have a small advantage in financial aid planning- then it’s worth learning more. If it’s ONLY for financial aid, it is 99% likely to be a bad idea financially. Why? Because you are risking long term returns and growth for a maybe return via an increased aid package, but you aren’t going to know that UNTIL you’ve moved the money and are locked in and can’t undo it.
For MOST people (I am not giving you advice, I am pointing out a fact which you can either apply to your own situation or not) annuities are a terrible financial aid avoidance vehicle. They have high fees- that’s money which goes to the salesperson who sells you the annuity, NOT to pay college tuition, and NOT to fund your retirement. The person selling you the annuity does not have the title of salesperson (financial advisor, wealth representative, some cute euphemism) but they make money when you buy- which makes them a salesperson. They don’t understand how financial aid works (which is why a lot of people who do not qualify for need based aid end up buying annuities… they are listening to a salesperson who doesn’t understand that UIUC ISN’T giving your out of state kid a “big scholarship” just because your income is below X dollars, or that NYU ISN’T giving your kid a “big scholarship” because NYU does not meet full need… etc.)
And worst of all- the annuity salesperson is banking on simple human greed when they tell you that by sheltering X amount of your income you can increase your financial aid by Y dollars per year. Totally ignoring the fact that by doing so, you may ALSO be cheating yourself out of tens of thousands of dollars of growth and returns in a normal no-fee, high growth mutual fund. Do you want an extra thousand dollars in aid next year or an extra 20K in retirement assets? You are very young to give up on growth and appreciation for the sake of a “maybe more” in financial aid.
Rant over. There is an entire industry taking advantage of the parents of college age kids and it is very sad.