<p>he's paying 20k/year total for my two sisters who are in college</p>
<p>To get a good estimate, try the EFC calculator at:</p>
<p>[FinAid</a> | Calculators | Expected Family Contribution (EFC) and Financial Aid](<a href=“Your Guide for College Financial Aid - Finaid”>Expected Family Contribution (EFC) Calculator - Finaid)</p>
<p>If he files 1040EZ, college is free.</p>
<p>^^^^^ not true</p>
<p>As a 3rd student, your folks’ EFC per student will be one-third of the original EFC. In effect, your folks will end up paying - very roughly, not knowing all your financial circumstances - a little more than what they are paying now. That’s a VERY rough guess because you didn’t indicate the value of family assets and incomes of siblings.</p>
<p>Even though the EFC for will be lower for the two older children - don’t expect a big change in the financial aid package.<br>
If the two older kids now get a need based grant - don’t expect that to change much. IMO he can expect to continue to pay what he is paying now for the two older kids.</p>
<p>EFC and what you are expected to pay often are not very close numbers.</p>
<p>1040EZ </p>
<p>
[quote]
Before we begin discussing the components of taxable income, it is important to understand that even the decision as to which tax form to file (1040 long form vs. the 1040EZ or the 1040A) can have a significant impact on your eligibility for financial aid.</p>
<p>Not All Tax Returns Are Created Equal
By filing one of the short forms, and meeting certain other requirements, you may be able to have all of your assets excluded from the federal financial aid formulas, which could qualify you for increased federal aid. This is a relatively new middle class financial aid loophole known as the “Simplified Needs Test.” Here’s the way it works: If the parents have adjusted gross income below $50,000, have income earned from work (i.e. wages reported on a W-2) below $50,000, and everyone in your family who must file a tax return uses the 1040EZ or the 1040A form (or doesn’t file at all) then all your family’s assets will be excluded from the federal financial aid formulas. This means that eligibility for the Pell Grant and the subsidized Stafford loans will be determined without regard to how much money you have in the bank or your brokerage accounts.</p>
<p>It can also be vital to parents with large assets, but little real earned income. You can have $49,999 of interest income, and still possibly meet the simplified needs test – in which case even assets of several million dollars will not be used in calculating your EFC. This can be particularly vital to parents with income below $40,000 but who have significant assets because they now may be able to qualify for the Pell Grant, which is free money that does not have to be paid back. Of course, many colleges use the institutional methodology (which does not utilize the simplified needs test) in awarding their own grant money. They may also insist that assets be used to determine eligibility for certain federally funded campus-based aid programs</p>
<p>where did you get the above info?
Thanks!</p>
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<p>Not necessarily. It all depends on where this student enrolls in college. MANY colleges do not meet full need…in fact MOST colleges do not meet full need. This student could be attending a college where 25% of need is met…or she could be attending a school where 100% of need is met.</p>
<p>[Financial</a> Aid and Your Income Tax Return](<a href=“http://www.princetonreview.com/grad/finance/articles/save/aidandtax.asp]Financial”>http://www.princetonreview.com/grad/finance/articles/save/aidandtax.asp)</p>
<p>From the above link. But I also read books that mentioned similar thing.</p>
<p>columbia student – the problem with your information is that the family has to file a 1040EZ or 1040A AND have an earned income of less than $50,000. the original poster stated that her father made 65,000 a year, so this won’t apply to her situation.</p>
<p>Additionally – the simplified needs test does not mean that college is free. What it means is that assets are excluded from the calculation of the EFC.</p>
<p>Finally – students need to understand two other important points: not all school meet 100% of demonstrated need AND many school require the Profile, which calculates the EFC differently.</p>
<p>Just for the record, the requirement re tax returns is that the parents not be required to file a 1040. They can file any form they want, 1040, 1040A or 1040EZ. The simplified EFC formula kicks in if, among other things, it was -possible- they could file the 1040A or 1040EZ, even if they actually used a 1040.</p>
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<p>I don’t know this family’s specific, but sometimes 401K contribution can reduce your actual earned income from $65K to $50K. I think this year if you are 50+ you can contribute more than $20K+.</p>
<p>I was just thinking- dad makes 65K ( before taxes I am assuming)
5 kids- two in college
I wouldn’t say this mom “doesn’t work” but I think she should write a book on how she does it!</p>
<p>be realistic – even if a 401K contribution can decrease earned income (and I am not sure that it does), that is simply not a solution for this family nor any other family in a similiar situation. Family of 5 with an income of $65,000 – paying $20,000 for college for two kids (which tells me at least one college is gapping). after taxes, they are barely making ends meet – they could hardly afford to pay $15,000 into a 401K.</p>
<p>Plus – money that is contributed into a retirement account is added back into the available income for both FAFSA and Profile. Assets in retirement accounts are protected, but not current income used to fund them.</p>
<p>the rules are very specific and can be hard to interpret – but I can tell you that most of the loopholes were closed many years ago.</p>
<p>
</p>
<p>I’m not trying to second guess this family and its finance. I was just stating how a person making $65K can file 1040EZ to qualify for this loophole. </p>
<p>
Yes that is if you don’t file 1040EZ or the equivalent non-1040. Because once you file for 1040EZ, your assets don’t count. So you don’t have to worry about adding back this and that.</p>
<p>
I read this loopwhole in a book that was published recently.</p>
<p>money that is contributed into a retirement account out of current income is added back into INCOME and not assets for the fafsa and profile. Yes, assets are exempt if the family meets the simplified needs test – but a family who earned $65,000 who contributes $15,000 to a retirement fund (401k or ira, etc) will find that $15000 added back in for income, which greatly effects the EFC. It is added back in on the worksheet B for FAFSA.</p>
<p>so --families who can file for the 1040A or 1040EZ who earn less than $50,000 can qualify for the simplified needs test which allows assets to be disregarded. The problem is that the EFC will be based on the adjusted gross income with the retirement account contributions added back in – and that money in retirement will not be available for spending. It can work for some families – but actually very few.</p>
<p>either the book is wrong or is not completely accurate – check out the FAFSA for yourself. Worksheet B asks you to list money contributed to retirement accounts – and then adds that amount back into available income. Profile does the same.</p>
<p>I know it does add back but for a family of 5 with $65K, assume no deduction. I used the collegeboard FM and got an EFC of 2,854 for a quick estimate. Assume no asset is counted because of form 1040EZ, and no 401K contribution. If OP has more detail to fill out, I think it would be even lower.</p>
<p>I am not sure what figures or calculators you are using – but I come up with vastly different numbers. This calculator is one of the most accurate (assuming the input is accurate) [FinAid</a> | Calculators | Expected Family Contribution (EFC) and Financial Aid](<a href=“Your Guide for College Financial Aid - Finaid”>Your Guide for College Financial Aid - Finaid)</p>
<p>When I put in the figures for a family of 5, 2 in college, dad makes 65000K, no money in retirement but an AGI of 60000 I get an EFC for the family of 8553 (then you divide that by 2 students to get each students EFC). This assumes assets of less than 43,000. If the family has assets in excess of this that are not home equity or retirement accounts, it might change things.</p>
<p>When I put in figures for a family of 5, 2 in college, dad makes 65000K, puts 15K in retirement (reducing the earned income to meet the simplified needs tests), AGI of 45K and add the 15K back in on worksheet 2, I get a family EFC of 7312 (then divide by 2 students).</p>
<p>So – put 15k in an untouchable retirement account and get an EFC of 7312 or don’t and get an EFC of 8553. For this family I don’t see it as a significant advantage.</p>
<p>I can see the advantage if there are significant assets and the income is very close to the 50K mark, but otherwise it just doesn’t work.</p>
<p>Isn’t it a family of 7 (parents + five kids)?</p>