<p>I thought the reason my EFC IM and FM calculator came up with $0 and FAFSA came up with about $9000 was because on the FAFSA I listed that I didn't know whether I would/could file a 1040A or EZ. Now that I know that I can, I amended it. Our EFC came down only $200. All other questions are answered the same. Hm.</p>
<p>Sushi - I don't know if it will help or just confuse things more but here is a link to the formula for how FAFSA calculates the EFC</p>
<p>Maybe it will help. But it is long. The 1040ez/1040a makes a difference if the parents AGI is below $50,000 (assets aren't taken into account in calculating EFC) or below $20,000 (automatic zero EFC). I think all family members have to be eligible to file 1040a/1040ez.</p>
<p>In my experience, the calculator EFC (I use FinAid's calculator) was exactly the same as the FAFSA, for each of the last two years. Try that one (it also has a detailed output that can help you track down errors by telling you what income/assets contributed to the EFC, and how much)-- and see what you get.</p>
<p>"AGI is below $50,000 (assets aren't taken into account in calculating EFC)"
*****, my interest and dividends put me over by 2K.
My earned income was less than 50K.<br>
Also, I find it very interesting that the asset protection for 1 parent families is less than 1/2 that for 2 parent families. That makes NO sense at all. My expenses aren't half that of a 2 parent household. My mortgage isn't half if I'm the only one who lives here.</p>
<p>The formula ABSOLUTELY favors people who haven't been savers. It also favors married people over single parents (I mean single parents like myself that have NEVER received child support)</p>
<p>It's just me and my son. My discretionary net worth is higher because my income and asset protection is less. But apparently I can afford to pay 12% of my assets. </p>
<p>So I've been penalized for being frugal and I get less asset protection (less than half that for married).</p>
<p>thanks Uncle sam, for nothing.</p>
<p>Sue-</p>
<p>You're in an unusual situation-- this might be one of the rare cases where it makes sense to contribute 2K to an IRA or 401K for '06 (you can do this through mid-April for last year's taxes).</p>
<p>The FAFSA formula does add IRA contributions back into income for purposes of the formula. BUT for purposes of the simplified needs test, it doesn't. So Adjustments to Income (IRA contributions, 1/2 self employed health insurance, Health Savings Account deductions, moving expenses and the like) act to reduce your AGI. And it's the AGI that can qualify you for the simplified needs test, where your assets are excluded from the formula.</p>
<p>Run the FinAd calculator. This time show 2K or so (whatever amount you're over 50K AGI currently) as an IRA contribution-- so you'll show an AGI just under 50K. Check that you're able to complete the 1040A or EZ (if you are). And see whether the calculator excludes your assets. I think it will.</p>
<p>Ordinarily, contributing to IRA's and 401K's during college years isn't helpful for financial aid purposes. This is the rare case where it can be VERY helpful.</p>
<p>The formula does not treat single parents fairly. I think Calmom explained the original rationale for the way the formula was set, and the intention was not what the result is. There are a number of crazy things in the way financial aid, taxes, need do not mesh. Financial aid is something that seems to have been thrown into the pot when these bills were passed.</p>
<p>It always hurts more, when you just miss a threshhold of protection as you have, and because you have interest and dividends from savings. Someone who has similar assets in $ amount but has them invested in other vehicles where the earnings are not explicit, would not have this issue. You might want to consider looking at other places to put your money since you will be filing financial aid statements for the next 4 years. </p>
<p>To be fair, Sue, Uncle Sam, is not giving you "nothing". Your EFC does make you eligible for some money, and possibly subsidized loans. Your son's academic profile makes him eligible for merit money. </p>
<p>It has always been one of those paradoxes that he who fritters his money away, is in better shape come the college years than he who invested it in improving his standard of living (house in good neighborhood, education,etc) The former can stop his habits and put the money into college expenses easier than the one who is stuck with commitments that are not so easy to get out of,especially if other children are involved. But savers are always better off than non savers, because they/you do have those assets and choices that someone who does not have a dime saved in the same income category does not have. Clearly there are rungs on this latter that are preferable perching points due to threshhold cut offs. Now that you know what those cut offs are, you can work to stay just under them so you can get maximum eligibility. I always feel that junior year college financial aid workshops should be offered and encouraged, because by the time you actually start applying, it's too late to do anything about rerarranging your finances. I've known folks with little or no saving, but they put all their money in their kid's name, only to find that it is now hit at 20% (used to be more than that), or grandma magnanimously opens the account in th kids name with a contribution that really reduces the aid he gets. Family businesses sometimes more generously pay a college bound kid so he can save for college. Not too smart, since that income is hit at 50% and if he saves it and it is sitting there, it is hit AGAIN as an asset at 20%. (there are some small exclusionary amounts I am not addressing). So planning is very, very important if you are eligible for financial aid since missing something by a few dollars can make a difference.</p>
<p>can I put money in an IRA if I alreay put money in a tax deferred plan (money is taken from gross pay before taxes)</p>
<p>FYI I'm 45 and my AGI was 52002 of which 49679 is wages.</p>
<p>Okay, I work for Uncle Sam (dept of defense) so I actually owe my income and savings directly to him :-)</p>
<p>We are allowed to contribute up to 15K per year to our thrift savings plan I think. Of course, the FAFSA includes this as income, so I'm getting that added in somewhere. Between that and health insurance and flexible spending accts, I'm going to try to get my AGI down more. The CSS asked what kind of car I drive. I wonder if I got any bonus points for driving a 1991 Honda Civic.</p>
<p>btw, my son got accepted to Rutgers New Brunswick, no word on scholarships or merit yet. Of course since I'm not a NJ resident, this is still about a 30K per year school.</p>
<p>I just did the calculator. Putting 2k into the IRA saved me about 2K in EFC. Not worth it.</p>
<p>
[quote]
The formula does not treat single parents fairly.
[/quote]
I don't think that has been established yet. Calmom discovered how those allowances are calculated each year, and they have to do with annuity prices to close the gaps, at age 65, between average social security benefits and average moderate income levels for different age groups. </p>
<p>The strategy seems to make sense, at least to me in the limited time I have to think about it. People with higher pay grades than me have spent a lot more time thinking about it than I have, and this is what they came up with.</p>
<p>Apparently when you plug in the numbers, the average single person actually does not have to protect anywhere near as much as the average married couple to achieve the same average result. Either that or the DOE bureaucrats in charge of making the annual calculations have been smoking their socks and getting the arithmetic wrong (highly unlikely).</p>
<p>Naturally, since this is meant to be exactly fair for the average cases, when you get away from the average case the allowances seem unfair to many people. It's the old "your mileage may vary" thing.</p>
<p>I think maybe they have been smoking their socks (my new favorite phrase dt). I can't see how it would be possible that a couple with the older person being 53 would be entitled to $53,000 in asset protection but if one of them dies the remaining single parent would only be entitled to $21,000 in asset protection. If it was 50% I could see some logic. I'm not a single parent - but I do think single parents are being treated very unfairly.</p>
<p>A one person household does not cost half of a 2 person household. </p>
<p>I work in a comptroller's office so I know a bit about numbers :-)</p>
<p>For 2 people, I pay 3x what a single person does for health insurance. According to the insurers, they COULD offer different rates for family size, but my employer (US GOVT) doesn't want to. I know a few married couples (no children) who each cover themselves as a single instead of as a 'family' because of the cost</p>
<p>maybe I should marry an old retired man just to get a better EFC :-)</p>
<p>DT, there are too many pockets where the single parent gets the shaft. As Calmom said, it was not the intention, but it happens. No comfort if you fall in those pockets, and it is especially unconciounable when it happens to those in the lower income brackets where it is really a struggle, and it can make an incremental difference in the financial aid results. The DOE mathematician (if they bothered to hire anyone who knows math) were smoking more than socks to allow that to happen. When coming up with threshholds and formulas, the goal is very much to protect those who are most vulnerable, and low income single parents fall into that category. To have a formula where it is possible to have less than half of a two parent household at the same income, is inexcusable, in my opinion. To just miss a threshhold hurts, but you've gotta draw a line somewhere, so there is nothing you can do about that, other do things in a gradation or fade mode. But to have that allowance have cases where the single parent gets less protection, is really an example of stupidity.</p>
<p>Well, someone with a dog in the fight (I'm married) could send a Freedom of Information Act request to the DOE to get all the work papers and memos relating to the asset protection allowance calculations. The exact formula was set by Congress and has been unchanged since 1993. The DOE just does the math each year. We could check it, then we would know. Until then it just seems unfair to some people. What else is new?</p>
<p>What we are finding is that the following lifetime choices and circumstances make EFCs lower and college educations cheaper for people:</p>
<p>Being married.
Having your children close together in time.
Living in a low cost location, so you have home equity but not too much, and so a modest income results in a satisfactory lifestyle.
Saving in a tax-advantaged retirement program, like IRAs.
Having a union, employer or government pension to rely upon.
Having smart kids that get merit aid, but not so smart that only Ivies will do.</p>
<p>What else have we learned?</p>
<p>The DOE needs to print a brochure that explains this to everyone between the ages of 20 and 30.</p>
<p>It doesn't just seem fair, if you take can actually put in numbers at the level where a family clearly is eligible for aid, and find that the allowance for a single parent is less than half of what a married couple would have. Those are the "some people" for whom it is unfair, the very ones we are trying to make things more fair for. This is not the only idiocy in the financial aid process. There are some things that are plain wrong and the IRS knows it. It doesn't take having a dog in the fight to bring up these issues; I have. It has been acknowledged that there are issues, and it has been brought up in the agencies as well. The way it works, is that you contact your individual school and hope that the financial aid office sees the idiocy of certain situation and adjusts for them. THese issues range from this particular allowance which is clearly unfair for those who somehow end up in the lower allowance as a single parent, to issues like getting double hit for a school award because it is sitting in your account on the day you file FAFSA. For some of these things, most of the time, the school will adjust. Others, you are out of luck.</p>
<p>
[quote]
this might be one of the rare cases where it makes sense to contribute 2K to an IRA or 401K for '06
[/quote]
IF the parent has the assets available, it ALWAYS makes sense to continue to contribute to retirement during the college years. I've done the math every which way I can. Here is what happens: the take deductible contribution gets added back as income.... but it would have been income if you hadn't contributed. That is, a $50K earner is still a $50K earner.</p>
<p>Because the amount is was a tax writeoff, the FAFSA formula treats it as untaxed income, and the EFC generally goes up by a little under half of what the tax would have been. So if a family is in a 20% tax bracket and puts $10K in retirement, they have a $2000 tax savings and their EFC goes up by around $940. So there is a net savings by making the contribution -- you pay more to Ivy U, but less to Uncle Sam, and you come out ahead.</p>
<p>IF the parents true source for the 401K or Keogh contribution is unsheltered assets, then by shifting them to the retirement account and making the transfer BEFORE counting up assets for the FAFSA, the parent also shelters those assets -- for an additional savings of 5.6% of every dollar sheltered. So out of that $10K in the example above, the fact that it is now moved into the retirement account means that there is a savings of $560 -- so, subtract that out from the $940 that the EFC went up because $10K wasn't taxed.... and that means a tax savings of $2000, and an EFC increase of only $380. </p>
<p>So any family that is in the position of having EFC pushed up by a large amount of savings or investments really should continue making the retirement contributions, as long as that won't leave them too cash-strapped to meet the expected EFC.</p>
<p>
[quote]
Calmom discovered how those allowances are calculated each year, and they have to do with annuity prices to close the gaps
[/quote]
I figured out the ostensible rationale, written into law, but I never said it was fair. On the contrary, it comes from one of those formulaes that at may seem fair in theory, but in practice is terribly unfair. The averages are skewed because of family situations involving more affluent married couples, such as where only one partner needs to work and the other stays at home, or works only part time for a job that is more of a hobby that a necessary contribution to household income. So there are all of these non-working or underemployed spouses bringing the average social security payment of married couples down in relation to their overall income -- keep in mind if that if the breadwinner is a high earner, then his income probably exceeds the maximum assessed for FICA -- so he's earning enough for 2, but only collecting social security for one. </p>
<p>But the bottom line that is that family is in a much stronger position, even if someone a numbers cruncher can say that their they will need a larger amount saved down the line. The single parent has absolutely nothing to fall back on.</p>
<p>Again, figuring out the rationale for a rule doesn't make it fair or equitable-- it just makes the process of fighting the rule somewhat more complex. Someone suggested that we single moms should sue, and wearing my lawyer's hat I saw that the law as written does not not seem discriminatory -- it is only in its application that the problems become apparent -- so it would be very difficult to challenge in court.</p>
<p>No one said you said it was fair. I am not taking a position on whether the rule is good, bad, fair, unfair. I am not smart enough to do that.</p>
<p>The single/married discrepancy certainly raises a red flag. It should be looked at by Congress. There is a permanent subcommittee somewhere up there that has this kind of thing in its portolio. Someone needs to write their congressman, and the chairman of whichever subcommittee it is, and bring the discrepancy to their attentions and request a review.</p>