<p>thumper1, I absolutely agree with you. In my case since my DS will go to college when I am 57 I will not be in a position to make withdraws from my IRA even if I wanted to without penalty. So from the college’s point of view my relatively large assets in IRAs will be non-entities. So just as an example, if Yale’s tuition does rise to $88K in 2013 dollars 15-16 years from now by my calculation on how much assets I will have left outside of IRA I should be looking forward a significant but not massive FA package which like I said I will gladly pocket. </p>
<p>My cousin also went to Yale 15 years ago and his family was in a similar situation I planned to be in 15 years from now and pretty much did the same thing. Again, the rules might change so I should not count on it.</p>
<p>Yale is a private school, and they seem to be reasonably bright there, so I don’t see any problem with arranging your finances to maximize the discount they are willing to provide. </p>
<p>OTOH, I do think it would be a shame to sponge the taxpayers for Pell Grants in this situation. But if the law allows it, then the answer is to fix the law.</p>
<p>I suspect that the financial information they will require in 16 years will be different from what they currently require. That said, there are a few pros on this site who have successfully gamed the system. Maybe they will PM you.</p>
<p>This OP clearly plans to be a multi-millionaire when he retires in several years. Oh but not so that it will show for financial aid purposes. Perhaps there are legit ways to get need based aid when you have millions of dollars in protected assets.</p>
<p>All I can say is…shame on you for feeling that you are entitled to free money when, if you chose to, you could take a portion of your plentiful assets and pay for your kid’s college education.</p>
<p>Go ahead…do what your parents did…game the system. Save your plentiful assets for your own consumption, instead of supporting the college costs of your child.</p>
<p>I hope you have a clear conscience and can sleep at night.</p>
<p>Given the $5000/year limit on contributions to traditional IRAs, the income phase-out on contributions to Roth IRAs, the $17500 limit on 401k contributions, and the limits on SEP-IRA contributions of 25% of earned income, it’s really hard to imagine how $6.5million can be rolled into any retirement vehicle that would be sheltered from FAFSA. Unless part of the plan is to pay the tax on the excess contribution, in which case you’re just paying the government, not the college.</p>
<p>In 15 years a lot can change, including your kid’s interests and your financial situation.</p>
<p>You can’t really blame someone for maximizing their advantage within the system, its called operating rationally. Its they look at assets or income at all really. However, if theyre going to, the rules should be obvious so people can know to stay under savings threshholds and the like. If they’re going to do it that way, they should ask for 7 years of tax data so as to avoid people with businesses piling expenses onto one fiscal year.</p>
<p>Its not ‘gaming’ the system, its the system. Why doesn’t Yale stop charging tuition at all and just use some of its 19.3B endowment? Not exactly sure what they’re sitting on it for.</p>
<p>vballmom- those are retirement vehicles for us little people. The world of Trusts and LLCs would make your head spin with legal asset sheltering, though the administrative costs and tax rates would as well. Truly only for the exceptionally wealthy.</p>
Profile schools ask about your retirement assets such as IRAs and 401ks. No one knows why for sure, but one speculation is that they are looking to see if you have overfunded your retirement accounts relative to your other assets and income, in an attempt to shield the assets.</p>
<p>At a FAFSA school, yes this strategy will work today, who knows if it will work in the future. But for a Profile school, I don’t think this would work even today. It’s pretty obvious what you are trying to do, and the schools aren’t dumb. In 16 years, who knows, but I wouldn’t count on it then, either. I wouldn’t be at all surprised if they try to count grandparent’s assets in 16 years, assessing your potential inheritance and taking a chunk.</p>
<p>As for what the inflation rate of colleges will be in the next 16 years, it is unknowable. I don’t think you can extrapolate a few data points in the past to predict the future. Too much can change.</p>
<p>For example, schools like Yale could abandon the fiction of affordability and just decide to charge what the market will bear, in which case it could be $150K a year or more. Or they could decide to hold the line and be at zero % for some number of years. 2-4% is a reasonable guess, but it is just a guess.</p>
<p>I would speculate your IRA assets are so high because you funded a business using your IRA, or you are a whiz of an investor. In that case, maybe you should look into putting some of those assets into a 529, which will grow tax-free and can be withdrawn tax-free for education. That will be more predictable than trying to guess how to game the system 16 years from now.</p>
<p>You seem quite enamored with this theory, despite the lack of evidence to support it. Since it is obvious from the data I have provided that tuitions have changed at very different rates from state to state, perhaps you can explain how this is driven by credit availability? I contend that credit availability is similar from state to state, enough so that the trends of pricing wood be similar if your theory were true. But perhaps you don’t accept the scientific method and the notion of testable hypotheses either?</p>
<p>I agree with this. With profile schools there really is no system to game because there isn’t a hard and fast system. Schools make their own rules and when an outlier situation comes up they can make up any rule they want to deal with it. I just don’t see schools handing out large sums of their money when they see several millions in retirement accounts. As for the money not being accessible at 57, I can see schools not caring how you deal with the penalty for early withdrawal. You could get a home equity or other loan and pay it back at 59 1/2. We see posts here of families having illiquid business or other assets and being expected to borrow against them, same with excessive home equity.</p>
<p>High net worth individuals aren’t restricted to the pre-made retirement plans like we are. Theres obviously limits on everything, but certain legal vehicles can be used to defer income and shelter assets for a limited amount of time.</p>
<p>I just don’t think once you get to this point(net worth >$2MM) the transaction costs of sheltering 90+% of your assets and defering your income for a year could possibly be worth the (relative to the costs) paltry savings. It’d make more sense if you just had a midsize family business you could claim lost money 2 years or something and had it levered so high that you only had a tiny stake in equity but the actual ‘stock’ sat elsewhere. With 6.5MM (don’t know where number came from but mentioned upthread) I don’t think theres much of a chance of doing this unless its all in a trust fund or something similar vehicle.</p>
<p>Since the OP said “IRA” and didn’t follow up on my comment about annuities, I just assumed he was talking about the traditional plans that are available to the rest of us common folk.</p>
<p>What he seems to be forgetting is that to support his lifestyle, he’s going to have to have some income even if the bulk of it is drawing down the principal of non-retirement funds. He’ll most likely be earning interest & dividends and realizing capital gains. All of this will appear on his AGI and be assessed at a much higher rate than the paltry 5.64% that FAFSA assesses his other non-retirement assets.</p>
<p>As has also been noted, Profile schools do collect information regarding retirement accounts. In addition, the FAFSA formula is tweaked every year, and Profile schools are always free to change how they calculate need. Predicting college cost of attendance and EFC 15 years into the future, while an interesting exercise, seems to be fraught with peril.</p>
<p>My money is on an employer plan that allows you to purchase things that appear to have a very low current FMV, but which have the potential to pay off enormously. Hence the Mitt Romney comment - that’s how he got such an enormous pot of tax-deferred money. Once you retire, it gets rolled out into an IRA. Works even better now that you can do a Roth 401(k), because you completely eliminate tax on the growth.</p>
<p>Not a deal available to you and me - no matter how skilled you are at picking investments, those kinds of investments are not available for you to chose from.</p>
<p>kmt1972 - as an early-retired with 2 headed for college next year I will offer a few comments. Like most folks planning for early retirement, you are wise to do your best to forecast and plan. </p>
<p>If I understand your planning model, you think it will cost $88K x 4 years = $352K to attend Yale in 2029-2033. While I followed your forecasting logic my gut says it is too low. A 5% cost inflation rate will result in $140K x 4 years = $560K, about 60% more than your original estimate. A 8% cost inflation rate (God Forbid!) will result in $239K x 4 years = $955K!</p>
<p>The good news is you have 16 years (for your 2 year old) - to have so much time with your child especially you being fully retired when he is 9 years old - imagine how involved you can be when your son is in grades 3-12 - wow! However, those 16 years are filled with uncertainty - a lot (good and bad) can happen in that time frame.</p>
<p>Your loyalty to Yale is impressive - we too spent some time in New Haven. For financial planning purposes I think you have selected a good school. Of course, as others have mentioned, Yale or even an elite school may not be the best match for your son - that’s a parenting decision and not a financial decision.</p>
<p>We have found that early retirement has changed our perspective on the value of higher education, particularly on the importance of post-graduate education. We strongly believe that, for students who are both capable and motivated, post-graduate education can be a life changing experience which we want to encourage and support. Consequently, we have adjusted our financial plans to include funding for post-grad work (MBA, MD, PhD, etc) that will allow completion with a minimum of debt.</p>
<p>As for financial aid, I will use your own words: “worst case scenario”. What you actually do is your business but for planning purposes, given the information you have shared here, I would recommend you plan on not receiving any financial aid.</p>
<p>mo1258 . Thanks a lot for your constructive feedback and insights. Congrats on your successful early retirement. You are very correct that one of the main reasons I want to retire early is to have an impact on my DS education. I plan to be semi-retired (I will most likely work 30 hours a week) when my DS goes to elementery school. As for graduate school, here is where some of my DW biases comes in. She also went to an elite university which was funded by a bunch of scholarships and through her strong academic record was able to pretty much go to business school without using a dine of her parents money via various scholarships and working herself. She pretty much refuses to fund for our DS’s graduate degree if any on the principle that he should come up with the money himself. I think she is open to loaning him this money. I am not sure I agree with this but this is like 18 years ago so we can fight that one later. </p>
<p>As for my calculations I want to make sure I explained it correctly. I do all my future planning in 2013 dollars. Next year I will re-adjust and do call calualation in 2014 dollars and so on. So my “worst” case scenerio is based on calculations in 2013 dollars. I assume that there will be a rise of 2.4% on top of inflation. So the $88K assumption a year are in 2013 dollar terms. If we assume PCE inflation over this period wil be about 2.5% (it will be 2% or below for a while as we get out of this deleverging situation but all this QE stuff will eventually come back to pus this up. For example, PCE inflation during a “normal” 1984-2006 period was around 2.6%) then that would put nominal increase of 4.9% a year which would work out to $137K a year in nominal terms. So your guess of 5% nominal increase a year pretty much matches my assumptions. I do not expect 8% nominal increase but who knows. But thanks for your feedback. I guess they way you are looking at it is that it will be 5% nominal at least and could be as high as 8% nominal. Thanks for your input.</p>
<p>Our dream for our children is to empower them to realize (to make real) their potential and be free to pursue their own dreams. </p>
<p>Regarding funding grad school - yea, your wife might be subscribing to what is commonly called the “skin in the game” or the “if I could pay my own way, so can you” philosophy. We also HAD that attitude as both my wife and I attended both undergraduate and graduate school without any help from our parents… But we think differently now and I will tell you why:</p>
<p>Career prospects: Assuming the student has both the capability and motivation, post-grad education opens a world of possibilities in jobs, earnings, lifestyle, contribution to humanity, early retirement, etc. Lots of kids coming out of great colleges with only undergrad degrees are having difficulty finding employment - a least a grad degree gives them an advantage as well as time to mature and focus. We are living in a much different employment market today compared to 20-30 years ago and we are concerned that the outlook is not much better for the next decade.</p>
<p>Personal Debt: We know many folks that have post-grad (MBA, MD, PhD) and are employed but smoothered in debt from funding their own post-grad education. There are plenty of horror stories about doctors and lawyers making less income than they expected while still paying off student loans 10 years after grad school. Financially this is a mess. But worse is the impact high debt has on the life choices a person can make - i.e. job, career, location, family, even spouse. What good is a medical degree from Hopkins and a desire to join “Doctors Without Borders” if they still have $200K in loans from med school.</p>
<p>We set aside MORE money for grad school than undergrad and consider it the family scholarship controlled 100% by us. If our child wants us to fund a PhD in underwater basket weaving, we can say “No”. Best case scenario is our child gets merit aid that pays for everything; worst case scenario we pay for everything; either way the future is bright.</p>
<p>OP, if you’re able to project accurately and set aside sufficient funds to pay for your child to attend Yale or a similar college at rack rate, more power to you.</p>
<p>As far as moving around assets to maximize need-based aid, your plans assume that your child will attend a school which is actually going to give your kiddo need-based aid. If you’ve been reading CC for any length of time, you should be acquainted with the concept of being gapped–namely, that a school doesn’t offer enough non-loan aid to cover the gap between the COA and the EFC. Only a handful of schools guarantee to meet need (which is always what the FA folks determine). </p>
<p>There are also schools where admissions are need-aware rather than being need-blind. In these cases, being full-pay is an advantage in getting in. Yale et al are among the handful of schools that are both need-blind in admissions and which also guarantee to meet full need. Those would be the schools that you’d be targeting for your child. Unsurprisingly, they’re the most selective in admissions. So IF your kid ends up having the top stats and portfolio needed for admission, and IF he ends up being lucky enough to get in, and IF the schools continue to offer need-based aid at the same current level of generosity and IF <em>all</em> retirement funds continue to be excluded from these school’s analysis of need…then yes, you can then figure out about how to move your resources around to maximize need-based aid.</p>
<p>I don’t think anyone here can really help you game the system, because none of us really know what college admissions and costs will look like in 15 years. You won’t find many parents here on CC who were able to successfully predict the massive rise in costs or the gamesmanship in admissions from when our children were small, and CC parents are in general pretty savvy and committed to higher education.</p>
<p>Your “worst case situation” should also consider situations that could drain your resources–another market downturn, serious illness and the like.</p>
<p>It’s not a question of feeling entitled, and I don’t think the OP is acting entitled, he is planning for having to pay 100%. If a school chooses to give his kid money, knowing he has that kind of wealth, that is the school’s decision.</p>
<p>Working the rules to your advantage is no different than taking actions (with the law) to minimize your income tax or estate tax. Are you outraged with Warren Buffett and Bill Gates for ducking out on 10’s of billions in taxes? They are playing within the rules as well.</p>
<p>The OP doesn’t say he’s entitled to need-based aid, true. But coming on a financial aid forum, announcing your expected assets and plans for early retirement, and then blithely telling people you intend to “game” the system…good heavens, what did he expect? :rolleyes:</p>