<p>If you plan to have $6.5 million, then why not set aside $1 million for college education expenses for your son. Surely you can leverage the remaining $5.5 million to live well in your retirement.</p>
<p>My objection is to the OP’s choice of words – he plans to sit back on his 6 million dollar IRA and “rake in the financial aid”. That’s not the same thing to me as simply hoping that he’ll be eligible for some aid based on the fact that all of his money will then be in tax-sheltered accounts. His attitude certainly does come across as entitled to me.</p>
<p>It is quite possible no one will be going to college in 15 years. They will all be doing online classes and the kid will be stuck at home while going to college.</p>
<p>I still don’t understand what the OP is planning on living on in 16 years when his child starts school. If all his assets are in protected IRA accounts, they are free from being used for tuition, but what is he living on? Any money taken out of those accounts do count for FA purposes. So for four years, the OP with $6.5M in assets is going to live like a pauper on no income? </p>
<p>By the way OP, if you are retired and taking money out of retirement accounts, they would be penalty free even if you’re under 59 1/2. What else don’t you know about IRS rules?</p>
<p>3bm, I am the one who thought a penalty was paid for withdrawal before age 59 1/2, not the OP. I honestly didn’t know that there wasn’t if the person was retired.</p>
<p>But there would still be taxes…unless all of this was in a Roth.</p>
<p>By the way…regarding trusts…if the OP, his wife, or the kid are the beneficiary of a trust, their share of the value is listed as an asset whether they have actual access to the money…or not. I just completed a Net Price Calculator for a friend and one of the questions was “value of any trust that the person is a beneficiary for”. I’m sure this OP wouldn’t be the first person to have a trust who is applying to HYPSM types of schools.</p>
<p>
Money in the bank. Cash out the year before so the cap gains doesn’t show up, and live on savings.</p>
<p>
I don’t think it has to do with be retired per se, but there are several allowable reasons for withdrawals prior to 59.5 without paying the 10% penalty, among them:</p>
<ul>
<li>to pay qualified higher education expenses (tuition, fees, r+b, books, etc)</li>
<li>if you make so-called “annuity” withdrawals, where you make withdrawals based on IRS life expectancy tables</li>
</ul>
<p>You still have to pay regular income tax if it is not a Roth, and I believe that no matter what kind of IRA it is, a withdrawal counts as income for FA purposes.</p>
<p>
Am I just being especially slow today? If the OP plans on needing, $100K a year to live on (conservative given their assets) for the four years of filing for FA, they would need to withdraw $400K the previous year from their retirement accounts. They then spend a third of it the following year but still have $300K sitting in an account which now counts for FA. If they have funds not in retirement accounts that they can live on, then those count whether to take money out or not. </p>
<p>They have to live on SOMETHING for those four years. Something that counts.</p>
<p>
No, Thumper, it wasn’t just you. This was per the OP</p>
<p>3bm103-
I admit to being a financial and tax idiot. Can you kindly explain to me why they need to withdraw 400K if they plan to live on 100k? I am guessing they have set up as much as they possibly could in their retirement plans/accounts that will be tax free at the time of withdrawl. Are you estimating other taxes that will have to be paid then? Are you also calculating their kids college tuition? I am really wanting to understand this as this is a discussion my DH and I have about how much we will have/need at t\retirement and I simply cant seem to get my head around it.</p>
<p>Thanks in advance-- and be sure to dumb it down for me. I really dont get it and its frustrating to me that I cant figure this out.</p>
<p>Sorry Jym. I don’t get it either. That’s why I’m asking.</p>
<p>The OP states that they will have $6.5M in retirement accounts before their child starts college. According to him/her, those cannlt be used for FA according to the rules. But anything outside of those accounts can, so I’m assuming that they will have nothing else. Otherwise they wouldn’t qualify for FA.</p>
<p>So…they will not want to withdraw from their retirement accounts in the years that will be looked at for FA. That would be four years in a row. So they will have to withdraw enough in the year previous to FA, enough to last four years. But they won’t spend it all in that year, it will sit somewhere. Wherever it sits, it can be looked at for FA. </p>
<p>Unless I’m missing something.</p>
<p>
Sure, but assets are only assessed at a maximum of 5.64%. With no income, it wouldn’t even be that high for much of it. </p>
<p>$300K in the bank will create a $10-15K EFC from the assets, but that is small relative to the $60K cost of a private.</p>
<p>And for FAFSA, today you could set things up to meet the $50K income threshold so assets aren’t counted at all.</p>
<p>3bm103,</p>
<p>I was thinking the same thing - where is the income for the early retirement years (48-59.5) coming from? For 9 years at least, they need to be living on something - and that money has to be disclosed for FA. I’m also assuming that the OP has a house, unless he is planning to sell the house and rent until his son is through college. </p>
<p>Really, it may not be the smartest idea but maybe he should just make the maximum contribution to the private college pre-paid plan (no Yale but Princeton, MIT and Stanford are on the list) now and be done with all this stuff.</p>
<p>“So they will have to withdraw enough in the year previous to FA, enough to last four years.”</p>
<p>Don’t you withdraw money each year as per IRS rules once you start? Why does it all need to be withdrawn for 4 years at once?</p>
<p>“where is the income for the early retirement years (48-59.5) coming from?”</p>
<p>I think OP mentioned having money outside of retirement which will be burnt through by 59.5.</p>
<p>
One might assume that if the OP has been able to pile up $6mil in an IRA, he has also been able to pile up substantial assets outside of the IRA. Obviously he needs money to live on, does he really need to spell out every dollar in every account?</p>
<p>And if the major expenses for most people are paid off (house and cars) it is possible to live a middle to upper middle class lifestyle very cheaply. Google “Mr. Money Mustache” some time. It’s not the way I’d want to live, but to each his own.</p>
<p>
If the OP plans very cleverly, it could be nearly gone by the time college rolls around.</p>
<p>It seems like a lot of work for a very uncertain payoff, but hey, if he can sucker Yale into giving him money, more power to him. They can afford it, and it will have no effect on anyone else, so it’s not like he would be stealing aid from someone more “deserving”.</p>
<p>Wouldn’t it be easier and more satisfying if you keep on working and be productive individuals contributing to something and continue to make things happen? If you can amass that much wealth in the early phase of your career, why throw away the opportunities for even bigger and more impactful outcome in the later part of your career. What about leaving a little bit of your fortune for your kids and grand kids?</p>
<p>I refuse to believe that this is real. It is a nice exercise of a what-if and what is possible but people with any bit of dignity and self-respect don’t think and plan things this way. It seems for such people, there are a lot other fish and better ones to fry than trying to game the Financial Aid system.</p>
<p>
</p>
<p>3ibm, do you have a reference for this, I don’t believe this is true. You can set up substantially equal periodic payments to age 59 1/2 under certain circumstances but it has nothing to do with being retired.</p>
<p>Texas, with Roth IRAs you can take out as much as you want, whenever you want forever after age 59 1/2. With traditional IRAs until age 70 1/2 you can do the same. After age 70 1/2 you need to take required minimum distributions each year which is a relatively small amount but you can take out more than that for whatever amount and whenever you want.</p>
<p>Taxed IRA distributions will show up in AGI, untaxed portions of IRA distributions still need to be reported on fafsa and profile.</p>
<p>I still believe that if the OP honestly reports the value of his retirement accounts on profile, that schools will not ignore them. Schools talk about typical assets, typical home equity etc. but when there is an outlier case like this, they are not going to ignore them in handing out their endowment funds. They can make whatever rules they want for situations like the OP’s.</p>
<p>“Texas, with Roth IRAs you can take out as much as you want, whenever you want forever after age 59 1/2. With traditional IRAs until age 70 1/2 you can do the same.”</p>
<p>It sounds like OP has thought this through if all he wants to do is take living expenses out and not pull out too much taxable income.</p>
<p>Essentially, colleges do need to take into account the overall amounts in retirement accounts for a retired person and ask for a percentage of the account like they do for money outside of retirement accounts. Otherwise, the current rules seem to allow OP’s plan in schools where they state that IRA accounts don’t figure into FA calculations.</p>
<p>
Would you say that to a SAHM?</p>
<p>Is OP a SAHM? What does that has to do with OP or what we are talking about?</p>
<p>^^ Please - let’s not go there. The OP is not a SAH parent. SAH parents do NOT retire on $6.5 million (if they do, let me know how it’s done).</p>
<p>The OP refers to his wife…so I assume the OP plans to be a SAHD once he retires.</p>
<p>The OP has moved on. Clearly he has this all figured out for 16 years from now. Really, this is all just churning wheels since need based aid as we know it right now might not exist at all. The simplified needs test for FAFSA might not exist. The Pell might not exist. For all we know, Yale will stop giving need based aid.</p>
<p>The last fellow with a similar story was a dad who resided in Westchester. He claimed to be a millionaire who earned $0 income so his kid could get a Pell. His kid wanted to attend NYU. NYU blew the “I don’t think so” whistle (no one really knows why…maybe interest and dividend income wasn’t reported on the FAFSA…maybe they verified and the parent could not document how he lived on NO income). Anyway…regardless…the posters on this forum gobbled this millionaire up for trying to get a Pell grant that truly is reserved for low income students…even though the dad claimed no income.</p>
<p>I find this situation similar, except that this parent has 16 years to save money not only for his $6.5 million retirement nest egg, but also for his child’s college education…regardless of the cost.</p>
<p>And if money is really an issue for this OP, there are a number of SUNY campuses that will be a financial bargain compared to many private, elite schools.</p>