<p>We have 529 savings for kids' college education. To augment our IRA & 401K retirement, we have additional (retirement) savings that are in money market funds. We do not want to touch these savings to pay for our kids' college education; we would like to rely mainly on 529 savings which are in parents' accounts. </p>
<p>We are contributing maximum to IRA & 401K. Please note the additional retirement savings exceed the age related $ amount admissible under FAFSA for parental assets. </p>
<p>Appreciate any suggestion for investment option to move the allocated retirement savings into some kind of protected retirement savings, so the FAFSA only takes into consideration (mostly) the amount in 529 account.</p>
<p>Options that you may want to investigate include retirement annuities and whole-life insurance. These are tricky investments, and not for everyone.</p>
<p>However, it is easier to sit down and make a determination of just exactly how much money you are willing and able to spend for your children’s education, and then tell your children that that is what is available. If they want a more expensive education, it will be their responsibility to come up with the money on their own through scholarships and working. This really isn’t any different than setting any other limits that you have had to set as a parent. </p>
<p>If your child says, “But Mom, our FAFSA EFC is X and you say you will only pay Y! What is wrong with you?” It is perfectly fine for you to say, “The FAFSA may indicate that we can afford X, but it doesn’t account for everything that is important to us. Y is what we will pay. Period.”</p>
<p>Happykid is at our local community college for this very reason. Our FAFSA EFC is more than four times what we can justify spending at this time.</p>
<p>In the end, most find there are not safe and attractive enough vehicles to shield money from consideration. All of the places you can park it come with big penalties if withdrawn or very low appreciation.</p>
<p>On January 1, transfer all your non-retirement savings to a Roth IRA. This is massively overfunding it, but it is not against the law to make excess contributions.</p>
<p>Fill out the FAFSA. Since the money is in an IRA, it is not counted as an asset.</p>
<p>After the FAFSA is filled out, you can remove any excess contribution (and earnings on the excess) and you will not be penalized or taxed on it (except for tax on any earnings). You can also withdraw the non-excess part at any time without penalty, because you’ve already paid taxes on it. Or just leave it there ($5000 or so) as that year’s retirement contribution.</p>
<p>If I read the rules right, you would actually have until you file your taxes the following year to withdraw the excess; that is, if you put the money in on 1/1/2011 you have until as late as 4/15/2012 to take it back out, which would cover two FAFSA cycles.</p>
<p>Anyone see any holes in this? Not sure if this is fraudulent or not… you are not legally required to withdraw the excess contributions, but you will pay a yearly penalty of 6% until you do.</p>
<p>You can also use the money to pay down your mortgage, if you have one, because house equity for your principal residence is not counted on FAFSA. Open up a HELOC if you can to provide access to your equity if you need it.</p>
<p>Notrichenough “you are not legally required to withdraw the excess contributions, but you will pay a yearly penalty of 6% until you do”</p>
<p>While the idea of opening Roth IRA for the purpose of FAFSA seems original, losing 6%/year (over funding) does not look appealing. </p>
<p>“My husband put some of his savings in an annuity for this purpose”.
It would be interesting to know more about the safety of invested capital and the duration of the annuity.</p>
<p>If the family is already contributing the maximum to the retirement accounts for both parents, I have to wonder why they would not be willing to have the 5.6% of the assets tapped for college costs. College is limited time (four years per student?) and they could add to these accounts after the student graduates from college.</p>
<p>So what you’re saying is that a family should have to delay the retirement that they’ve worked hard for and scrupulously save for so that they can bankroll not just their own student’s education but that of another kid whose parents didn’t bother to work as hard or save as much? Does that even seem REMOTELY fair to you?</p>
<p>Bedouin read again. These parent are NOT delaying retirement. They are contributing the max to their IRS/TSA accounts AND they have money in regular non-retirement mutual funds.</p>
<p>And where do you think that this money that they’re contributing to the COLLEGE (not to their accounts) is going to end up? Taxed away, gone with the wind… :rolleyes:</p>
<p>Do not wish to co-mingle parents assets and kids’ 529 $ for FAFSA; Need to have EFC (for both FAFSA & Institutional calculation) that reflects mainly 529 $ savings. Also have another kid ready in a few years. (Want to pay for college only from 529 $). </p>
<p>Thanks susgeek for the link. </p>
<p>CCers: Pl. keep any additional ideas flowing. Thanks in advance.</p>
<p>Trinity, you are fortunate to have a 529 and savings that can be used towards college costs. Many students do not have these funds available to them. You might want to also look at schools where your student would garner some merit aid. This could also help you. Look carefully at college costs. Is it possible there is a college out there that you could fund with your 529 and savings…and the Stafford loan (which the student can receive by filling out the FAFSA)? YOu may have to cast a wider net than you thought but at least you have some available funds to help you fund college costs.</p>
That’s the beauty of it though - if you pull the excess out before you file your taxes, you don’t pay <em>any</em> penalty or extra tax.</p>
<p>So:</p>
<p>1/1/2011: you fund the Roth IRA
1/2/2011: you file FAFSA, the money is in an IRA so it is not counted
1/31/2011: you file your taxes for 2010, no issues because the IRA contribution was in 2011
1/2/2012: you file FAFSA, the money is still in an IRA so it is not counted, it’s counted as a retirement asset for CSS
1/30/2012: you pull the excess contribution and earnings out, and withdraw the regular amount if you want
1/31/2012: you file your 2011 taxes. Since no excess contribution exists any more (you took it out before filing) you owe no excise penalty, you just pay taxes on the earnings.</p>
<p>In 2013 you do it again for the last two years.</p>
<p>You are not hiding the money, you are not doing anything illegal by putting it into a Roth IRA or taking it out, you are not giving it to a relative with the expectation of getting it back, you don’t have to buy illiquid things like an annuity or life insurance… there is probably a flaw in this plan somewhere, but I’m not seeing it.</p>
<p>^^ Intriguing idea that may require further examination by experts.</p>
<p>With about $140K for 2 Kids, it leaves roughly $65K for the Senior & $75K (inflation adjusted??) for the Freshman. As Redroses mentioned, it becomes difficult to shield retirement savings with adequate safety & returns above inflation rate. </p>
<p>Thumper, yes we are casting wider net for merit $; </p>
<p>Still keeping the savings meant for retirement away from FAFSA would go a long way, especially for very highly selective ( & very expensive!) colleges that provide mainly institutional scholarship/grants (not merit $), based on demonstrated need (= COA-EFC). As Happymom said, we may have to focus on mainly state colleges that have low COA and/or the ones that offer some merit$.</p>
<p>I’m not keeping much in my money market fund these days - it is paying 0.09% return. You might be better off withdrawing it and keeping it in a safe deposit box, IMO it would be about as ethical as notrichenough’s scheme.</p>
<p>notrichenough -
If you file the FAFSA in early January (2012), then pull the excess contribution out before your file your taxes at the end of that month, the FAFSA folks (and the school, since virtually all of them require a copy of your tax return) would probably notice that the numbers don’t match up and the EFC would be “corrected”.</p>
<p>If the OP has maximally funded 401K and IRA, (and extra funds on top of that)then they have socked a LOT of money away. They certainly are not hurting financially. (can’t you put something like 15K or 18K per YEAR into a 401K (on top of what yur employer puts in, if any), and possibly more if you’re over 50??)</p>