I will likely retire in 2017 but we have two children who will be attending college over the next 8 years.
I have a FAFSA/financial aid question.
Essentially all of our assets, other than home equity, will be in 401 or similar qualified plans and our income will come from those same plans. How likely is it that our financial structure will decrease our EFC?
Will the decisions generally be different at public vs. private schools, especially with respect to home equity.
Some of the threads concerning EFC are not encouraging.
Your family contribution will be based on your income from various years.
Remember that the financial aid application forms are now using prior prior year tax year information. For the 2017-2018 year the 2015 tax return is used. For the 2018-2019 it will be 2016.
The money you take out of your qualified retirement plans will be your income. The balances left on those accounts will not be counted as assets. If you collect social security or have any other pensions, those will also be income.
Re: home equity…this will vary depending on the college. Some don’t count home equity for your primary residence…at all. Some count some of it…and others count it all.
@BelknapPoint will there be a difference in how the financial aid forms view this retirement income? Will it be viewed as unearned income??
To the OP…the key here is how much will your retirement income be?
@thumper1 has it right regarding how the income from your retirement accounts will be counted. It’s still money in the eyes of the financial aid calculators.
The CSS Profile (used by most private schools) is much more in depth than the FAFSA - it asks for a more complete financial picture and includes a boatload of questions. (Filling the CSS out actually helped with the filling out of the FAFSA, as it included very specific descriptions and definitions for the information they were asking.) The CSS Profile asks for things like the value of your residence and whether you own it or not. The FAFSA doesn’t care about this at all. For those who are income average but asset rich, EFC’s are not encouraging, especially on the private school side.
Without knowing both your pre-retirement and post-retirement “financial structure,” it’s impossible to say what kind of EFC change you might see with retirement.
I don’t think it makes any difference. It will need to be reported either as taxed or untaxed income, depending on the type of retirement account from which the distributions are taken.
To the OP…just remember. If you retire in 2017…the 2017 tax year will be used for the 2019-2020 financial,aid forms…so at least part of your pre-retirement income will be used.
Likewise, the 2016 tax year will be used for the 2018-2019 financial,aid forms…so your pre-retirement income will be used for that year.
EFC (at least as calculated by FAFSA) may be somewhat dependent on the type of income when differentiating between W-2 wage income and 1099-R retirement income. This is because FAFSA asks for W-2 taxable income information, I think so that FICA withholdings can be taken into consideration and not pegged as available to use for college expenses. Since there is no FICA withholding from 1099-R retirement income, more of this income would be available to the recipient for college expenses, resulting in a higher EFC, all other things being equal.
The big thing this poster needs to remember…he will have income from his employment for the 2017-2018, 2018-2019, and 2019-2020 fafsa and Profile forms…if he retires in 2017.
For fall 2018, you will be using the 2018-2019 fafsa and Profile forms. They will use your 2016 income…which sounds like it’s your full income from working.
Your 2019-2020 fafsa and Profile will use the 2017 income…what will your total income be for the FULL year. It doesn’t matter if it changes midway. It’s the full 2017 tax year that will be used.
And what is it NOW? No way to tell you if or how it will change. Also, keep in mind…the VAST MAJORITY of colleges do NOT meet full need for all accepted students.
One more question…YOU are retiring…but what about your spouse?
ETA…I wanted to retire too…but I waited until both of my kids finished undergrad school. The only thing that might have changed that is if I had college savings for both of them…but we did not. Do you?
She will continue home schooling for the next 4 years. I understand that colleges are not known for providing good financial packages but I am hoping to know whether paying full price is the new norm even for grizzled retirees.
Unless you HAVE to retire, you might want to wait and see if you’re going to need that add’l income to pay for college.
Many folks think that a lowered income means more aid, but often it does NOT…it often means more loans/debt. You may find that your kid(s) will get gapped and you’ll be scrambling to pay the costs.
@Madison85 Has the OP mentioned his age? If she/he doesn’t qualify for SS yet and elect to begin receiving, I don’t think his kids can collect.
There is a tiny bit more asset protection as you get older. But we don’t know if you are “older” or just retiring.
Your kids’ need based financial financial aid will be based on your income and assets for the year used to determine need based aid when they apply. The financial aid will NOT be based on your status as a retiree. Truthfully…that makes no difference at all.
The very vast majority of colleges do NOT NOT guarantee to meet full need for all accepted students. They just don’t. The ones that do guarantee to meet full need for all are HIGHLY competitive for admissions. HIGHLY COMPETITIVE.
If you are going to have a budget for college costs, I would strongly suggest you share this with your kids BEFORE they apply to colleges.
Because your income will be fluctuating, you might want to consider having at least the kid starting in 2018 apply to places with guaranteed merit aid. This will not be income dependent. For that kiddo, your income from work will be considered for the first two years of college…not JUST your retirement income.
And if she goes to a college that doesn’t guarantee to meet full need…a reduced income will NOT mean an increase in need based aid.
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She will continue home schooling for the next 4 years. I understand that colleges are not known for providing good financial packages but I am hoping to know whether paying full price is the new norm even for grizzled retirees.
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??? How old is your child?
If she’s just starting high school, then also focus on schools that will give huge merit for stats.
Ok…this totally does NOT align. It is 2016. If she plans to home school for the next four years, she will NOT be starting college in 2018 as a full time student.