Conflicting FAFSA Info for Widow - Please Advise!

Paying for College
1

<p>We are trying to fill out the FAFSA corectly, but when I call the help line, I get conflicting information. Actually, I have two questions:</p>

<ol>
<li><p>Are the social security payments my daughter received over the past year supposed to be reported somewhere?</p></li>
<li><p>My husband passed away in 2008 and I received cash payments from insurance policies. Some is invested in mutual funds and some is in a savings account. We use the interest/dividends along with the cash for month-to-month expenses.</p></li>
</ol>

<p>One FAFSA representative told me that life insurance payments did not count. Another told me they did count. A third one told me that they only counted if they were counted in my AGI. I don't know what to think! Please advise!</p>

2

<p>I was in the same situation you are. My husband died 5 years ago while I had 1 in college and another in high school. </p>

<p>Here’s what my CPA told me:</p>

<p>1) SS survivor benefits paid to your <em>daughter</em> are not reported on your FAFSA as income.</p>

<p>However, once the benefits have been received by you, if they have not been spent 100% for her support, then whatever amount remains is considered a parental asset and must be reported as such. NOTE: if your daughter is over 18, then SS survivors benefits are paid directly to her and any amount not spent directly on her support is considered a student asset. </p>

<p>Student and parental assets are assessed differently by colleges.</p>

<p>2) Lump sum insurance payouts themselves are not reported as income, but any dividends/interest etc you receive from the investment of those payments are considered income and are included in AGI.</p>

<p>Once the insurance payout has been received, it is reportable as an asset.</p>

<p>3) If you are receiving a pension or annuity as part of your late husband’s insurance settlement, then the amount of the pension or annuity is reportable as income for your AGI.</p>

<p>Since the big lump payment will skew your asset profile and you are using the principal and investment proceeds to help pay your living expenses, it may be worthwhile to chat with the financial aid office at the college your daughter will be attending and see if they will make any adjustments for you. That big lump sum of an asset looks to them like it’s available for paying for tuition.</p>

3

<p>To see how much your cash and investments figures affect your FAFSA results, you should print out the FAFSA 2010-2011 EFC Formula Guide from <a href=“http://www.ifap.ed.gov/efcformulaguide/attachments/111609EFCFormulaGuide20102011.pdf[/url]”>http://www.ifap.ed.gov/efcformulaguide/attachments/111609EFCFormulaGuide20102011.pdf&lt;/a&gt; Since you are a one-parent household, you do not get as large an asset protection under the FAFSA formula as would a two-parent household. Do the math and figure out if it is worth it to you to move some of the money that is over the asset protection threshold into a different kind of vehicle.</p>

<p>If your holdings that are a major source of family income, you may want to meet with a financial advisor to discuss whether putting some of this money into annuities makes sense for you. Some “instant annuities” begin to pay out shortly after the initial investment. Annuities normally are considered to be retirement funds (some might not be so you need advice about this), and as such aren’t visible to FAFSA. Annuities are very tricky things, and aren’t good choices for everyone. However, there are times when they are good options. </p>

<p>Wishing you all the best.</p>

4

<p>I don’t get any pension annuities, but I do have a little interest/dividends from the investment made with the lump sum payment. The interest/dividends are the only components of my AGI in 2009. However, even though that amount is very low, I am afraid that the fact that I invested some of the insurance money disqualifies me from filing the simplified needs FAFSA. Therefore, I think my one-time insurance benefit will seem to be an asset available for college expenses. This doesn’t seem fair, since we lost our only household breadwinner and rely on the insurance money meant for the day-to-day support of the family. There is no way I can make up his income. What should I do? Are things really as bad as they seem?</p>

5

<p>I have always reported Social Security as WayOutWest indicates, but I just learned on another thread that the rules have changed:</p>

<p><a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/868951-am-i-supposed-report-social-security-benefits.html[/url]”>http://talk.collegeconfidential.com/financial-aid-scholarships/868951-am-i-supposed-report-social-security-benefits.html&lt;/a&gt;&lt;/p&gt;

6

<p>As WayOutWestMom suggests, you should speak with the college financial aid offices and ask if there is anything that they can do for you. And before next year’s FAFSA rolls around, you may want to think carefully about the best ways to have your money invested for the long term. Yes there may be ways of reducing the amount of money that you have to report to FAFSA, but choosing those investment options may not be good for you four years from now when your daughter completes college. Please don’t lose sight of that!</p>

<p>At worse, your daughter may need to work part-time and study part-time. Or she may need to find an inexpensive college/university that she can commute to. She still can get a good education and have a good future.</p>

7

<p>lkf-- I have great sympathy for you. I understand exactly how you feel. I was in the exact same position 5 years ago as you are now. I lost my husband suddenly in an accident. He was the sole breadwinner and I had been out of job market for years. That lump sum insurance payment suddenly gave me a large amount of assets with very little income. Colleges felt I ought to spend down my assets to pay tuition for my daughters. </p>

<p>My oldest ended up at the state flagship U using our state’s generous in-state tuition scholarship. (Basically she got 4 years of free tuition. I had fees, books, parking, insurance but since the flagship is here in town, she lived at home for free.) D needed a 5th year at the state U because she changed majors (twice). She took out an unsubsidized student loan and worked to pay her tuition.</p>

<p>My youngest got a major merit scholarship to private U. She also works full times in the summer and part time year round to help pay her expenses. (And she has since her dad died when she was 15.) </p>

<p>And I did decide that I could spend some of the insurance monies on their college expenses. I also went back to school myself, got a graduate degree in a new field and re-entered the work force this year.</p>

<p>I know things look very bleak right now. I am sometimes amazed I made it through that first year of widowhood. I’m pretty sure i was crazy for a good long while. But I do promise that things will get better.</p>

<p>I strongly urge you to educate yourself about your financial situation. Some colleges offer continuing education seminars for women in our situation. Or talk to a certified financial planner. (A fee-based one who charges you for services and does not take a commission on any investments he sells you. If you belong to a credit union, they usually have one working there.) I know it seems like I’m suggesting you to spend money when your financial future is uncertain, but it really is good investment in your future security.</p>

8

<p>Hello,</p>

<p>So, let me see. Your interest and dividends are part of your AGI, yes? And that is the only money for the AGI (no other income, like from a job that is taxable)? The lump sum from life ins is not taxable income. The interest is taxable income, unless the funds are in some type of IRA or 401 rollover. You receive a 1099 form for interest earned; you likely did not receive a 1099 form for the life insurance, just for any interest the funds may have earned.</p>

<p>First, are you eligible to file a 1040A or a 1040 EZ? If someone else prepared your taxes, they may have used a 1040 even if you were 1040A eligible. No matter, you just need to have been eligible to file the 1040A or 1040 EZ form.</p>

<p>One of the odd reasons why you may not be able to file a 1040A or EZ can be, in some cases, if you received a state refund last year that was taxable this year.</p>

<p>If your AGI is under 50,000 and you filed a 1040A or EZ or were eligible, that is one way to meet the simplified needs test. There are others but this way seems likely for you, and if so, your assets will be ignored in the FAFSA calculation. However, a CSS profile may look at the situation differently. </p>

<p>You may also want to let the FA office know (depending on the school, if they request more documents or have their own FA form) that your D’s SSA survivor’s benefits will end when she is 18 or graduates from high school [I believe any other children receiving benefits in the family then receive more funds but I am not quite sure how this works]. </p>

<pre><code>I agree with WayOutWestMom that you might talk with a financial planner about how to preserve your capital, how to tuck some money into some retirement accounts, and so on.
</code></pre>

<p>Bottom line – the assets could be assessed at 5.6% IF you do not meet simplified needs; if you do meet simplified needs with a 0 EFC, the assets are ignored.</p>

9

<p>I had an accountant prepare my taxes. Sadly, he says that I did not qualify to submit a 1040A because I had “qualifying dividends”, so I guess they will want 5.6% of my assets. My income was <$15K - try to live on that! It just seems so unfair, as the assets they want us to use are the same assets that were supposed to keep the family afloat (like home, utilities, car and food). There is something wrong about this. I feel like the rug is being pulled out from underneath me.</p>

10

<p>Where on the 1040 are qualifying dividends reported? Are these dividends from a mutual fund? I did a little bit of research and it seems as though non qualifying dividends and capital gains require a 1040, but I would suggest you ask your tax preparer to show you the IRS info or call the IRS and ask them which publication explains it.</p>

<p><a href=“http://www.incometaxarticles.com/tag/1040a[/url]”>http://www.incometaxarticles.com/tag/1040a&lt;/a&gt;&lt;/p&gt;

<p>Is your EFC 0? Your daughter might be eligible for some state grants.</p>

<p>PS If that was the only thing holding you back from a 1040A, I would move those funds to another financial instrument, possibly a CD. This might help you out in the future when applying for FA and protect your insurance money for your household needs.</p>

11

<p>I think my EFC <em>should be</em> zero, but If I have to offer up my husbands insurance money, we will probably pay the full cost of attendance until we use up enough of the money. After all, it’s still a relatively big pile of money at this point.</p>

<p>I guess I should be sure that I can fill out a 1040A in future years. Unless, perhaps the college would take my individual circumstances into account. I wonder how that usually goes…</p>

<p>If anybody has any advice or suggestions, they would be welcome!</p>

12

<p>I put the life insurance into equity in my home.</p>

<p>It isn’t taxable so it won’t turn up on your income tax, and the only place it would be reported would be as home equity.</p>

<p>Anything “liquid” has to be reported as savings, and is available for college expenses. It doesn’t matter its source.</p>

13

<p>I’m mighty confused here. Your assets would have to be mighty plentiful for you to be a full pay even instate at a public university. Assets are tapped at 5.6% (roughly). So…if you had $400,000 worth of assets, you would have roughly $22,400 allocated to college expenses at 5.6%. That would still leave you with $377,600 in your asset account. </p>

<p>Am I missing something? I realize you are also using this money to pay your living expenses…but seems like your principal can support this and your college costs at an instate public university.</p>

14

<p>I’m mighty confused here, too. I don’t have that many assets. As I understand it, I don’t have to count social security payments that my D received last year. Retirement funds are protected. Cash is available. Home equity is available. Non-retirement investments are available. Does anything else get included as an asset? </p>

<p>I made appointments with a financial person and a college person to sort this all out. I was hoping to preserve my principle as much as possible, but I don’t know to what extent that can happen. Still, I guess I should reserve judgement until I figure out the fafsa, let the colleges know our situation and get a final aid package. (It’s just like me to get a head-start on my worrying! I did the EFC estimate once and it was really high. Then I did it again on a different day and I got a very manageable number. I obviously did something wrong on one of those times!)</p>

<p>thumper, do you mean that I would not be expected to contribute more than approximately 5.6% of assets?</p>

15

<p>I’m hoping Swimcatsmom will pipe in. For the FAFSA, 5.6% is approximately the amount that is assessed for parental assets (not exactly that amount but pretty close). Assets in the CHILD’S name are assessed at 20%. Are any of these assets in your student’s name?</p>

<p>In your OP, you mentioned the FAFSA. There is NO PLACE on the FAFSA to put the home equity in your primary residence. If you own a second residence or other property this IS listed…but not home equity in your primary residence (where you live).</p>

16

<p>The only asset in D’s name is a small checking account. As for the home equity, that’s good news. One of the online calculators asked that question, I think. </p>

<p>I guess at this point a calculator is irrelevant, though. I just want to fill out the fafsa form correctly and be done with it. Hopefully, it will all work out.</p>

17

<p>If you use the institutional methodology on the online calculators, they ask for home equity.</p>

<p>Use the federal methodology.</p>

18

<p>Reinforcing what thumper said, lkf:</p>

<p>FAFSA assesses parental assets at a max of 5.6%, AFTER subtracting out the asset protection allowance (which varies depending on the age of the parent(s). For the current FAFSA (2010-2011) the Asset Protection Allowance for a one parent family where the parent will be 50 as of 12/31/10 is $20,500 (add $500 for each year above 50 until age 53, then it’s 600 per year of age for a few years – see chart here on page 19:
<a href=“http://www.ifap.ed.gov/efcformulaguide/attachments/111609EFCFormulaGuide20102011.pdf[/url]”>http://www.ifap.ed.gov/efcformulaguide/attachments/111609EFCFormulaGuide20102011.pdf&lt;/a&gt; )</p>

<p>Highly recommend the book “Paying for College Without Going Broke” for everyone - updated every year, has all the tables used for both federal and institutional methodologies, very thorough. Makes it easy to plug in numbers for various scenarios to see how your EFC(s) is affected.</p>

19

<p>Well, I got the results of the FAFSA and it was not nearly as terrible as I feared. I do think that I will let the college know about the particular details of my situation, though, as it may help in bridging the inevitable “gap”. Thanks everybody!</p>