EFC & retirement protection

Paying for College
21

<p>Depending on your age…you can put $20K into an IRA or TSA per year. If each parent is doing this they also need to remember that their contributions to those funds will be ADDED BACK IN as income by the FAFSA/Profile calculations. In other words, if they put $40K into two separate IRA accounts in 2010, their income for finaid purposes would add back in that $40k</p>

<p>Before they get all tied up in knots about the money market money and what to do about it…they should see if it’s going to even make a difference if that money is put elsewhere. They may do all of this moving around and find they STILL have an EFC that is higher than they would like it to be.</p>

<p>And for others reading this thread…remember…your contributions to retirement accounts are ADDED back in for the FAFSA year (would that include the Roth contributions…I think so). The balances IN those accounts are not listed as assets. So…if you are saving for retirement, and do not want to use that money for college…put it in REAL retirement accounts.</p>

22

<p>I thought the maximum you could put in an IRA was $5000 a year or $6000 if you are over 50. Plus there are additional limits for Roth IRAs based on income.</p>

<p>Contributions to a Roth are not added back to income by FAFSA as they are not deducted from income on your tax return so do not reduce the income reported on FAFSA. Contributions to regular IRAs are added back to income by FAFSA as they reduce the annual income reported on FAFSA.</p>

<p>Would a reputable investment company even allow someone to overfund an IRA to the extent suggested several posts ago? The rules about taking it back out without penalty are set up so that if someone mistakenly contributes a little to much they can withdraw it without penalty. Deliberately massively overfunding it sounds very hinky to me.</p>

<p>You would have to pay taxes and 10% penalty on any earnings on the withdrawn overfunding .</p>

23

<p>

Is this really any different than buying an annuity or life insurance?</p>

<p>I think it is a matter of degree. If I have two million dollars in the bank, that’s one thing. But if my 401k/ira+separate savings add up to the same as, say, the present value of a pension paying $50K/year, why shouldn’t the savings be protected in the same way as the pension?</p>

<p>

Good question! The IRS pubs don’t address this. Their examples use only small numbers but nothing I’ve read indicates it is illegal. At the end of the day, as long as everything is in order when you file your taxes, the IRS doesn’t care.

Taxes yes, penalty no. In any case, if the money is sitting in a money market making 1%, a penalty would be minuscule. </p>

<p>I’m not sure what if anything needs to get reported on your tax forms when you fund a Roth IRA.</p>

24

<p>Trinity…</p>

<p>All this money-wrangling may be for naught.</p>

<p>It sounds like you and your H already have a high income, that alone could cause an EFC too high for any/much aid. **And, you have the 529 accounts to add in. **</p>

<p>I’m not sure, but I think someone said on an earlier thread that ALL 529 accounts get added in as available funds when figuring the EFC of one child. So, if you have $50k in each 529 account and you have 3 kids, that would mean $150k in a 529 account being added in. Others can correct me if I’m wrong or confused.</p>

<p>So, have you figured out what your EFC is using JUST income and 529 accounts alone?</p>

<p>Again, you may find that your EFC is $60k+ even without the money market funds. So, all of this worrying may be for nothing.</p>

<p>And…if your kids will be applying to schools that require CSS Profile, they are less likely to be “understanding” that you want to protect so much money. They aren’t going to pay for your kids’ education so that you can over-fund retirement.</p>

<p>PLUS…any current year contributions to retirment get added back to income. So, if you will have kids in college over the next 10-12+ years, then every year your retirement contributions will get added back in as income because it will be considered a “personal choice” to fund retirement over college. </p>

<p>Colleges believe that the PRIMARY responsibility to pay for college rests with the family…not the college. Only if the family has little or no means will the college pay (if it even has the funds…most colleges do not have the funds).</p>

25

<p>I think there would be a penalty on the withdrawal of any *earnings *related to the overfunding</p>

26

<p>The difference in EFC calculated from (Income+529$+Parents retirement assets held in non retirement [Money market] funds$) - (Income+529$) =</p>

<p>Federal Methodology/Year ----------> $18,000</p>

<p>Institutional methodology/Year-------->$16,000</p>

<p>These are rough figures from College Board Calculator. So a total of either $72K or $64 K / child for 4 years of undergraduate contribution will be depleted from funds allocated for retirement; Double the contribution (for 2 kids), and that makes a dent in the retirement funds. Also, we may want to contribute (either from our own retirement$ or from current income) for their graduate education. </p>

<p>Hence the need to find ways to protect the funds that are kept aside for retirement.</p>

27

<p>Wow. Doing the math, that means that the OP has $320K stashed away ON TOP OF a maximally funded 401K and IRA (so that means at least a few hundred K more, probably more than that). Sitting pretty – many people would love to be in such a comfortable position financially.</p>

<p>Note that FAFSA only assesses assets (above the asset protection allowance) at 5.6% (I think it may be something like 5.625%, to be precise) and CSS Profile at 5%. That leaves the bulk of assets untouched…</p>

28

<p>

</p>

<p>Please don’t think I’m being harsh…contributing to grad school is YOUR choice. This has no bearing on undergrad funding at all. </p>

<p>I’m with mom2…if your INCOME is such that your EFC would preclude institutional funding (yours is too high for any federal funding other than loans…not matter which way you compute it), then that is that.</p>

<p>It sounds like you have a large nest egg in non-retirement savings AND are maxing contributions to your retirement. The non-retirement savings could certainly (in my opinion) be used partially to fund your kids’ undergrad educations. </p>

<p>It sounds like you are hoping to somehow shelter a large amount of money so that OTHERS will fund your kids’ college educations. I’m sorry, but I do not agree to this philosophy.</p>

29

<p>So a total of either $72K or $64 K / child for 4 years of undergraduate contribution will be depleted from funds allocated for retirement; Double the contribution (for 2 kids), and that makes a dent in the retirement funds.</p>

<p>First of all, you are wrongly assuming that an EFC is all someone has to pay per child. Schools don’t have to do ANYTHING with EFC except see if you qualify for any fed aid (which isn’t much). </p>

<p>Most people have to pay more than their EFCs since MOST schools gap. The only “free money” that most schools can give is Pell grants and that for families with low EFCs (like below 5000).</p>

<p>The difference in EFC calculated from (Income+529$+Parents retirement assets held in non retirement [Money market] funds$) - (Income+529$) =</p>

<p>I’m confused…</p>

<p>Why are you adding (Income+529$+Parents retirement assets held in non retirement [Money market] funds$)…and then subtracting…(Income+529$) =</p>

<p>???</p>

<p>Just so we’re on the same page, let’s plug in some mythical numbers…</p>

<p>AGIncome = $100k (adding back in a current year’s 401k contribution)</p>

<p>Total of all 529 accounts = $60k</p>

<p>Money Market = $80k</p>

<p>EFC = (about) $23k</p>

<p>But…if you take out the Money Market money so that only AGI and total 529 accounts are included…</p>

<p>AGIncome = $100k (adding back in a current year’s 401k contribution)</p>

<p>529 accts = $60k</p>

<p>Then EFC = (about ) $18,300</p>

<p>So, although there is about a $5k difference, it really is no difference if your children will be going to FAFSA only schools because they don’t generally meet need. Either EFC is too high for federal grants and probably won’t get W-S either.</p>

<p>If your kids have the stats (stellar test scores and high GPA) and they go to one of the elite schools that meet need, then you could get aid…depending whether they consider equity or other things.</p>

<p>So, for a family of 4 that would be about </p>

<p>*The difference in EFC calculated from (Income+529$+Parents retirement assets held in non retirement [Money market] funds$) - (Income+529$) =</p>

<p>Federal Methodology/Year ----------> $18,000</p>

<p>Institutional methodology/Year-------->$16,000</p>

<p>These are rough figures from College Board Calculator. So a total of either $72K or $64 K / child for 4 years of undergraduate contribution will be depleted from funds allocated for retirement; Double the contribution (for 2 kids), and that makes a dent in the retirement funds. Also, we may want to contribute (either from our own retirement$ or from current income) for their graduate education. *</p>

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<p>Trinity, <em>I</em> would have preferred to have kept all of my savings for future use also. Wouldn’t everyone prefer to do that? The reality is you have significant assets if this is going to impact your family contribution in a big way. Sorry…but with that amount of assets, why do you feel you should be eligible for need based aid?</p>

31

<p>People who have assets but don’t want to pay should have their kids look for big merit schools.</p>

32

<p>Mom2collegekids: </p>

<p>There are 2 kinds of schools we are contemplating.

  1. In-State schools in MI &
  2. Highly regarded schools with great engineering program (Both public [out of state] & private).</p>

<p>My S is interested in Bio Medical or Bio-Chemical Engineering. </p>

<p>I would think that my S, who has some decent scores, (36-ACT, 2290 [1530, CR+M] -SAT, 5 APs with all 5s, 3 subject tests in Math & science with average of 795/800), National Merit Semi Finalist, GPA 4.15 /4, should be eligible for some kind of merit (not need) at State schools.</p>

<p>With regards to schools that have very high academic reputations in engineering, I understand there are no certainties regarding admission. However, since their COA is so high, and since none of them provide any merit $, it is difficult to come to terms with high EFC. </p>

<p>Thumper: We are definitely not looking for need based aid from Schools; we believe that need based aid should be used to fund the really needy students. But we ought to be able to protect our retirement savings when it comes to super academic (many which are super expensive) schools. We keep hearing about Princeton & Stanford as the (academically coveted) schools that levy reasonable COA as a percentage of one’s income. </p>

<p>So far we have heard annuities as possible shielding strategy & Roth IRA. Just wondering if there are any other defensive strategy.</p>

33

<p>RPI has excellent merit. My younger S is a medalist, which means that if he attends RPI, he will receive a merit scholarship of $15 grand a year. Not bad for a merit scholarship, and a very highly regarded engineering program (he is also looking at Chem Eng.).</p>

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<p>

</p>

<p>There are schools with excellent engineering programs who would love to have a student with these stats. NO…they are not Princeton or Stanford or MIT. But have you considered schools like Lehigh, or Lafayette? How about Villanova? All are smaller schools with excellent engineering programs. RIT/RPI would likely give your kiddo about $15K a year…which would “protect” that amount of your retirement assets.</p>

<p>Your state schools in MI are good ones as you know. And instate costs should also be able to “protect your retirement assets”. </p>

<p>I’m assuming the retirement assets you are referring to are the ones NOT in your IRA/TSA accounts. The balances in your IRA/TSA accounts are NOT counted as assets. It’s your other accounts that are not authorized retirement accounts that are your issue, correct? </p>

<p>I will say it again…MOST folks would prefer to keep their savings for other purposes. <em>I</em> would love to have the savings I spent on my kids’ educations. I could have used it to purchase a new car, or a retirement home…or MORE fund my own retirement (like you, I fully fund my TSA). But those other monies are NOT retirement accounts and I felt fortunate to have them. I didn’t spend it ALL on my kids…it ALL was not assessed for financial aid purposes. </p>

<p>And I’m sorry to say…but you ARE looking for money from the schools…you are hoping to somehow shelter your non-retirement funds so that those pricier schools will not require you to use that money for financing college…and somehow your costs won’t include that money.</p>

<p>I guess I don’t understand how you are not hoping for money from some of the colleges?</p>

<p>Most folks who really want to conserve their assets simply tell their kids that they will need to go to less expensive colleges. I know you feel your child has done well and has earned the chance to go to one of these expensive schools. If you can help fund this, fine. Otherwise, you may need to make different choices. You have said you are funding your TSA/IRAs to the max. That is terrific and those funds ARE protected.</p>

35

<p>I would think that my S, who has some decent scores, (36-ACT, 2290 [1530, CR+M] -SAT, 5 APs with all 5s, 3 subject tests in Math & science with average of 795/800), National Merit Semi Finalist, GPA 4.15 /4, should be eligible for some kind of merit (not need) at State schools.</p>

<p>Yes and no. There are some state schools that don’t give merit to non-residents. Some give very competitive merit and some give assured merit. Which OOS state schools are you considering?</p>

<p>We are definitely not looking for need based aid from Schools; we believe that need based aid should be used to fund the really needy students.</p>

<p>*But we ought to be able to protect our retirement savings when it comes to super academic (many which are super expensive) schools. We keep hearing about Princeton & Stanford as the (academically coveted) schools that levy reasonable COA as a percentage of one’s income. *</p>

<p>??? </p>

<p>These two passages contradict each other. On one hand you say that you’re not looking for need-based aid, yet on the other hand you’re looking for asset protection so that you’ll get need-based aid to help pay for expensive schools. </p>

<p>Would you please clarify? </p>

<p>I also think you mean…“levy reasonable family contributions” as a percentage of income. If you read the fine print it also says something like “reasonable assets”. So a family with an income of - say - $150k that has a lot of assets would not just have to pay $15k per year if they have lots of assets. </p>

<p>Most folks who really want to conserve their assets simply tell their kids that they will need to go to less expensive colleges. I know you feel your child has done well and has earned the chance to go to one of these expensive schools. If you can help fund this, fine. Otherwise, you may need to make different choices.</p>

<p>This is true. If you want to conserve assets, then less expensive schools or merit aid is often the answer. If your child gets into Stanford or Princeton which has uniquely generous aid, then that is another alternative. Those are the ways to reduce EFC. But, if your child gets into MIT or Cornell, expect to pay a full fair share.</p>

36

<p>OP, Another good option for your family may be to look at international universities. Specifically, you may find having your child study in Canada a good option.</p>

37

<p>Another college choice for this student is Case Western in Cleveland. It has excellent engineering programs and this student would likely get terrific merit aid.</p>

<p>Isn’t there another thread going somewhere…engineering and good merit aid? I’d check that one out. As I recall, there are some excellent suggestions there.</p>

<p>Just FYI…Stanford and Princeton, those two very generous schools when it comes to need based aid…award their very generous aid ONLY to students with “typical assets”. Perhaps THIS is why this family is trying to somehow shelter their non-retirement savings?</p>

38

<p>Colleges are business. They sell education as a service. Students and their parents are the customers (buyers) of their service. Firms that recruit students on college campus reflect their (students’) market worth; students’ market worth also depends on other factors such as college major, supply /demand, location & in some cases constraints on supply (eg. medical – internship related) etc. Recruiting companies are one of the major stakeholders.</p>

<p>The current tuition pricing model favors colleges. Colleges have access to student’s FAFSA; many use profile in addition to FAFSA. They can use selective pricing (price discrimination) to maximize their revenues / profits. There is not much incentive to reign in tuition. Easy credit (loans) is also a contributor. Students and parents, in many cases, are not privy to how the merit aid functions. IMHO, this is one of the most asymmetric transactions, where the colleges hold much of the bargaining power. Having mandated school specific financial calculator may help the consumers to be better informed. </p>

<p>Let me clarify the “need” for academically coveted colleges. I meant the demonstrated need is the scholarships & grants that is disbursed using colleges’ own funds, not the Federal grants for need based aid.</p>

<p>We, as parents, have a fiducial responsibility to ensure our assets last our lifetime, so as not to end as wards of the state. I believe the choices for a middle class (mid-upper?) student with decent scores & some parental assets are: </p>

<ol>
<li><p>Apply to:
a. Great State schools
b. Academically reputed Schools where the student has a fighting chance for tuition free award / other merit awards
c. Great Canadian universities (substitution effect)</p></li>
<li><p>Convert most of the assets into officially designated retirement vehicles. Understand the downside, and calculate the cost / benefit / risks before undertaking this exercise. </p></li>
</ol>

<p>Now coming to out-of-state universities, the following criteria are important (to us). </p>

<p>a. Academic reputation, meaning will my S be able to compete globally with the best-in- class in his chosen major (BME and or ChemE)
b. Lower out of pocket expenses.
c. Safety &
d. Help grow in multiple dimensions</p>

<p>Some of the OoS schools: </p>

<ol>
<li> Georgia Tech. If my S is lucky to obtain Presidential Scholarship, it certainly would be worth applying. They have great BME & ChemE programs.<br>
[Georgia</a> Institute of Technology :: President’s Scholarship Program :: Program History](<a href=“http://www.psp.gatech.edu/stats.php]Georgia”>http://www.psp.gatech.edu/stats.php)</li>
<li> University of Pittsburgh; hear good things about their biomedical eng program; also have ChemE. Seem to offer limited tuition free scholarships. Don’t know how many though. [University</a> of Pittsburgh: Undergraduate Admissions & Financial Aid](<a href=“http://www.oafa.pitt.edu/universityschlrs.aspx]University”>http://www.oafa.pitt.edu/universityschlrs.aspx)</li>
<li> University of Minnesota, Twin Rivers. Their ChemE program is highly regarded, also offer BME with multiple minors. May receive up to $17K in Scholarships; their OOS tuition seems reasonable.<br>
[University-Wide</a> Scholarships](<a href=“http://admissions.tc.umn.edu/costsaid/schol_campus.html]University-Wide”>University-Wide Academic Scholarships | Office of Admissions)</li>
<li> USC. I believe they offer ½ tuition for NMS finalist. Seem to have quite a good engineering (BME) program. </li>
<li> Also applying to Case Western & Rice. Not sure how much out of pocket expenses we will incur.</li>
</ol>

39

<p>^^^
It looks like you have some good possibilities for some good merit at some schools, so they can be your son’s financial safeties. </p>

<p>Since the USC scholarship is assured, that is a good one. It covers about $20k of the $56k COA. Your aid package there will likely include the NMF scholarship, a $5500 student loan, maybe some work-study, maybe a grant, and the rest will be your contribution.</p>

<p>Keep in mind that many/most of these schools will put loans in their FA packages. Are you ok with your kids taking out student loans?</p>

<p>*We, as parents, have a [fiduciary] responsibility to ensure our assets last our lifetime, so as not to end as wards of the state. *</p>

<p>Of course that is true. But, there’s a difference between ensuring retirement and over-funding and hiding money to get more aid.</p>

40

<p>Trinity, if you’re looking for OOS publics in the northeast, you might also look at Univ at Buffalo, which is the largest of the SUNY schools. They have excellent engineering programs, a great honors college, very reasonable OOS costs ($13K tuition), and generous OOS scholarships up to full rides (around 25 full rides awarded/year). Scholarships awards are higher for OOS kids than instate. I believe they are still finishing the new engineering complex but have good facilities, all around, and an involved, diverse student body. There are several posters here (on the SUNY Buffalo forum) who have engineering students if you’d like more specific info.</p>

<p>[UB</a> Engineering - University at Buffalo](<a href=“http://www.eng.buffalo.edu/]UB”>http://www.eng.buffalo.edu/)
[UB</a> Office of Financial Aid: Costs - Undergraduate](<a href=“http://financialaid.buffalo.edu/costs/undergradcost.php]UB”>Financial Aid Cost of Attendance – Financial Aid)
[UB</a> Undergraduate Admissions: Costs, Scholarships and Aid - Scholarships - Merit Scholarships](<a href=“http://admissions.buffalo.edu/costs/meritscholarships.php]UB”>http://admissions.buffalo.edu/costs/meritscholarships.php)</p>