I would greatly appreciate advice on the pros and cons of dealing with one-time capital gains in terms of its impact on financial aid. I have recently sold my business of 10 years and while my tax return from 2019 will certainly qualify us for significant financial aid, I am concerned about future FAFSA applications and additional information needed when filling out CSS profile - if necessary. I completed the FAFSA application prior to selling the business so I’m currently in a holding pattern trying to figure out the best place to put our capital gains. I have been presented with detailed information on deferred variable annuities which I’m not sure makes sense due to the associated fees and if it’s even worth it to have the money tied up for 9 years.
Please…please research annuities before you do this.
Are you planning to use that capital gain money for a future purchase? Will you get a future purchase done before filing the next financial aid forms?
Any chance you can use this money to help fund college costs?
Do you have additional income? If so, if your income is sufficiently high, this might not matter at all.
@stevemerr If the below circumstances apply to you then the FA administrator could possibly exclude the capital gain as income…
“There is also an exception when capital gains are realized as the result of
a sale of farm or business assets of a family if such sale results
from a voluntary or involuntary foreclosure, forfeiture, or bankruptcy
or an involuntary liquidation.” Section 479A(b)(1) of the Higher
Education Act of 1965 gives college financial aid administrators the
authority to exclude the proceeds of such a sale from income. However,
college financial aid administrators are unlikely to grant an
adjustment to income for capital gains in other situations."
If this doesn’t apply then I would ask the same question @thumper1 did, Could you use any of this money for college costs?
Unfortunately, you will get hit in terms of financial aid for the inflated income due to the capital gains if the above doesn’t apply.
I’m not well versed in annuities or the advantages/disadvantages of them, but I do know that while annuities don’t have to be reported on the FAFSA they do have to be reported on the CSS profile, which would impact institutional aid.
Even if the one-time income is excluded, it will count as an asset if you still have it when you file the FAFSA. I have seen this scenario result in increased aid, but I have also seen it make no difference in aid (because the EFC was still high enough to preclude aid at that school). The individual family circumstances and the aid policies of the school make this a YMMV situation. Best advice: Talk to the school financial aid office.
We would not qualify for an exemption for sale due to any of the circumstances listed.
Yes we do plan to use some of the capital gains for college. However, this is a one time capital gains realized from 10 years of very hard work and little income reported over this period. There also won’t be any significant earned income moving forward. This gain should be our retirement fund but unfortunately we also can’t contribute to an IRA this year due to the capital gains. It has also been suggested to pay down our mortgage. This suggestion along with annuities feels very risky to lock money away for at least 15 years.
Many thanks for all the advice! This is such a helpful forum.
Who is suggesting annuities? Is it a financial planner? If so…get a second opinion.
Yes a representative from an insurance company that offers this type of annuity
This person is a salesperson. Please please…get advice from somebody whose business doesn’t include selling these annuities. Of course that is what they will advise…because they stand to make money from you.
Find a financial person to help you deal with this money from the sale of your business…to help you for now and years to come.
I hate to say it, but the college costs should be secondary. You need a firm plan for this money from this business sale.
@BelknapPoint comment about annuities being offered by someone whose business it is to sell them??
My understanding is it’s variable annuities that we’re warned to stay away from. Another form is “Fixed,” which may be fine.
Yes, find an impartial but informed financial planner who does not benefit from the sale of the variables. I don’t know all the ins and outs.
Bottom line can be to get $$ into what’s called a QRP or Qualified Retirement Plan. Those funds are not calculated as ordinary, usable assets for EFC or Family Contribution. As Thumper said, this is more thsn just a FA issue.
This may seem like an odd question…but if you didn’t have a college student…what was your plan for money for your living expenses? And what would you be doing with the profit money from your business sale?
And again I ask…will you be spending the money in the bank from that sale before you file your next FAFSA?
But really, I think you would benefit from a conversation with a financial planner who doesn’t sell products.
Our sale was delayed by 5 months due to COVID so I stopped planning next steps because everything felt so uncertain and still does for that matter. However, the one benefit to the delayed sale was that I could complete the FAFSA application before the sale went through. I now need to deal with the proceeds from the sale and I still might need to complete the CSS form. I would like to keep a portion of the gains liquid to supplement earned income and to help pay for college. The balance I would like to invest for retirement. It’s striking the right balance between liquid and locked away. I have been warned against annuities and paying down my mortgage. Sounds like the advice I’m getting from senior forum contributors is to seek out a financial advisor that doesn’t sell a product like the one that’s already been recommended to me.
ETA…I’m not telling you whether or not to buy the recommended annuity. That is not my area of expertise. At all. I’m suggesting you explore options.
I’m not a financial planner…but I do use one. This person has helped my husband and me make some decisions about where to put our money to benefit us while we are working as well as when we retire.
I guess I’m suggesting you find a person who can give you sound financial advice all around. You have living expenses, college expenses, and really it would be great if you could plan for your retirement.
My opinion.
You mention you might have to do the Profile. What does that mean?
Is your child currently a HS senior? I’m sort of unclear about that. If so, are there more affordable colleges on her application list? Did she apply to any schools where merit aid could be a possibility? Did she apply to public universities in your state of residence?
Yes my son is a HS senior. He has applied early decision to his reach school and if accepted would require us to fill out CSS form which has different rules regarding assets and I now have greater assets than when I completed the FAFSA. Aside from his reach school he has a good range of schools on his list.
Please check the financial aid application deadline for early decision students at this college. There is a priority deadline for ED students. The ED acceptance usually comes with a financial aid offer so that the student and family can determine if the school is affordable. If you haven’t completed the Profile, and the school requires it, you don’t have a complete financial aid application. Your kid won’t get considered for institutional need based aid (which I understand you say he doesn’t likely qualify for this year).
Why would you complete this form after the fact unless the school requires it if you want to apply in subsequent years?
You don’t wait until after acceptance to fill out CSS. FA deadlines are well before decisions are released to students. Some have even passed already for ED applicants. Besides, even if you were allowed to submit CSS after acceptance, how would you know if you could afford the school without receiving the FA determination?
From my understanding the school my son applied to for ED only requires FAFSA to be completed for application to be considered. They will inform applicant if a CSS profile is required. I will contact the financial aid off directly to clarify.
@stevemerr while some colleges may only require the FAFSA to be completed for the application to be considered most will have a priority CSS deadline for ED students that you don’t want to miss if you want to to get the aid offer early so that final decision can be made. I always recommend filling that out in October also when the FAFSA should be completed…You should be able to find the CSS priority deadline for ED students right on the website under “financial aid deadlines”.
If you dont mind, what school has your son applied to. unless your son is doing ED at University of Chicago, the y state thwart the school only requires the FAFSA if you are only seeking federal aid. if you need institutional aid from there, you must either fill out the CSS profile or Chicago’s own form.
What college “requires” a FAFSA for an admissions decision?