<p>Does "bunching" a substantial amount of income ever come back to haunt you in year 2?</p>
<p>I've been doing the FAFSA/Profile for 6 years so I have a pretty good idea how it all works for the current year. My friends ask me FA questions all the time.</p>
<p>In this situation, my friend proposes taking some substantial retirement distributions in 2011. There will be 2 students splitting the FAFSA EFC when it is filed next year. They could lose all their grant money but the grant money will probably go down anyway since child 1's earnings are going to go up a lot in 2011.</p>
<p>The students receive substantial merit aid so the actual amount of pure grant money lost will not be as high as is might be at a pure grant school. Obviously, there is always the chance the merit money might be lost if GPAs aren't maintained, but child 1 has a GPA cushion and hopefully child 2 will maintain the merit scholarship also. (so the higher EFC won't cost the parents more than the lost grant money)</p>
<p>In 2013 child 1 should be graduating and the EFC will be split between child 2 and child 3 (who will be entering college in 2013). There is a really good chance child 3 will be applying to schools that require the CSS Profile. The Profile does ask about prior year's income. Will the big year in 2011 affect the the FAFSA/CSS Profile filed in the spring of 2013 using 2012's lower numbers? </p>
<p>The year to bunch the income is 2011 if it only knocks out the grant money for 2012 which is potentially a LOT less than the grant money in 2013. But will the Profile schools question why the drop in income or where it went? (well, to pay college costs and get caught up, duh?!). I always heard to make all moves before the spring semester of a child's junior year.
Any advice?</p>