<p>I'm trying to help a co-worker whose h.s. sophomore will be their first to go to college. She is asking me to share some advice on admissions procedures, financial aid, etc. They may qualify for FA, but there is a 'catch' as her husband is over 70 and retired. He had a nice retirement, opting for a lump-sum pay out which they rolled over into a 401K-type account rather than take a monthly pension. As a result it looks like they have a lot of money, but it is his/their retirement money and they are not in a position to use it for college expenses for their kid. My friend basically works so the family can have medical benefits and they live on her husband's retirement, so this money has to last even through her own retirement. She is about 50 YO. She completed a FAFSA worksheet that resulted in a really big EFC. Any thoughts? Is there room for 'special circumstances' on that form? A real person discuss the situation with?
This is really going to impact the choices their child will have.</p>
<p>For the LONG story, see </p>
<p>If that lump sum distribution is in an account <em>registered as a 401(k) or IRA</em>, then those assets will not be counted towards available assets for college. Just saying X bank account is designated as a family's retirement fund doesn't protect it. If the latter is the case, OP's friend may want to contact colleges to see how that might be handled. FAFSA, etc. also takes into account the age of the older parents, so there may be some protection taken into account for retirement income.</p>
<p>If OP's friend is making IRA/401(k) contributions currently to her own retirement fund, those contributions are thorwn back into income as available for FA purposes. However, her funds already in retirement accounts are not.</p>
<p>As countingdown stated - 401Ks are not reported as assets on FAFSA though money withdrawn from them is reported as income (my husband is also retired)..</p>
<p>If you need more detailed instructions for how to answer the FAFSA questions they can be found here:
Completing</a> the FAFSA 08-09/The Application Questions(1-31)</p>
<p>Detailed explanations of what to include in assets are here:
Completing</a> the FAFSA 07-08/The Application Questions(81-83)</p>
<p>where it says
[quote]
Do not include the value of life insurance and retirement plans (pension funds, annuities, non-Education IRAs, Keogh plans, etc.).
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</p>
<p>By the way there is a financial aid forum on CC - if you post your questions there rather than the parents forum you will find lots of people willing to help.</p>
<p>Countingdown,</p>
<p>Your post is one of the reasons I find the financial aid policies at schools grossly unfair. If I recall correctly, your husband works for the federal government with a retirement program and associated healthcare insurance. Those of us whose employers eliminated such programs and laid off workers covered by such must fund our retirement out of savings. Unfortunately, colleges see such savings as available for college tuition. Colleges ask questions about many aspects of financial health - but never take into consideration the availability of retirement programs. IRA contributions will not be sufficient to support a retired couple and pay their health care costs</p>
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<blockquote> <p>IRA contributions will not be sufficient to support a retired couple and pay their health care costs>></p> </blockquote>
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<p>Not wishing to highjack the thread, but it depends on how much you have invested in your IRA. For some, these accounts WILL fund their retirement, including health care costs. I know folks with tons of money in IRA accounts because they have been contributing for YEARS.</p>
<p>Now having said that, I DO agree that there should be some consideration for the use of regular savings for retired folks who do not have additional pension income.</p>
<p>Also...I want to add that I do NOT think it is correct that folks with REQUIRED contribututions to a state retirement plan have to add in those costs annually as income (per fafsa). In some states, for example, teachers do NOT contribute to SS and instead pay into a state teachers retirement plan. This is NOT an optional thing. It is done instead of SS. BUT those teachers are required to add in their retirement "contributions". Of course if they had been contributing to SS instead they would NOT have to do this. This is not an optional retirement contribution. It is required...instead of SS.</p>
<p>DH has not been a federal employee for his entire career -- it was a mid-career change. When we completed the PROFILE, we found they <em>do</em> account for the value of his non-taxable benefits (in our case, the employer-paid part of medical coverage) and we were also asked if he was covered by a traditional pension plan. I assume that those are taken into account when considering FA (esp., since we didn't qualify for any based on his gov't salary), since I've read in the various materials that PROFILE looks at one's "funding" for retirement down the road, and makes allowances in EFC for people who are underfunded.</p>
<p>The tradeoff when DH considered changing jobs was lower salary but better benefits and a pension (he had no retirement plans at his previous job). Being risk-averse sorts, and in our late 30s at the time, we took the long view. Four years later, I was diagnosed with leukemia. My meds cost as much as a year of private college. We are grateful we dodged that bullet. But I also feel a little guilty about what that $$ could do for healthcare expenses in the broader community.</p>
<p>I worked in 401(k) and retirement plan administration/benefit communications for fifteen years before leaving due to my illness. The defined benefit pension plan as we know it -- that my father, as career Army, and my FIL, as career union, took for granted -- has crumbled during my career. When I first took EE benefits courses in 1986, the big mantra was about the "three-legged stool of retirement -- pensions, Social Security and savings." IRAs/ and 401(k)s were part of the "savings" -- traditional retirement plans were the pensions. HA! Now most people are lucky if they have two wobbly legs on that stool. </p>
<p>The financial aid system in this country is seriously messed up. No argument from me there. People who save seem to be penalized at every turn. The prospects of people who can't/don't save for retirement scare me, too. As part of my last job, I made presentations to enroll employees in 401(k) plans. So many people are living so close to the edge now -- how can they think of saving for something that's years down the road? And what lies at the end of that road? I have four sibs, and none have anything put away for retirement or college. Three of the four have teenagers. None have jobs that provide a pension.</p>
<p>Glad to discuss this offlist, Reflectivemom.</p>
<p>P.S. Cross-posted with thumper: Many public service jobs have required employee contributions. Have seen it professionally and personally. Agree that FA ought to consider looking at assets outside of retirement vehicles and consider them pension assets in certain circumstances.</p>
<p>
[quote]
This is NOT an optional thing. It is done instead of SS. BUT those teachers are required to add in their retirement "contributions". Of course if they had been contributing to SS instead they would NOT have to do this. This is not an optional retirement contribution. It is required...instead of SS.
[/quote]
I don't believe that is true. Teachers who have a defined benefit plan - like I do, where contributions are required, don't have to list these as contributions on the FAFSA or Profile. (I asked the Profile people about this 4 years ago). Only additional optional contributions have to be listed. I work for a school district that participates in both SS and Texas Teacher Retirement System; both get deducted from my paycheck. I wonder how much of that money I'll ever see!!!! ;)</p>
<p>Well...oddly the amount I contribute to MY teachers retirement in a no SS state IS in one of the little "boxes" that has to be added back in. And I've been doing so for five years.</p>
<p>The amount that is automatically deducted off your paycheck, that is not optional? Maybe you are interpreting the retirement question wrong? I did originally list those contributions - then emailed Profile, because the information on the form was unclear. I provided all my details - and they clearly said that I should not include them, because they were not optional contributions. Only amounts over and above the amounts automatically deducted from my paycheck had to be listed. (Since the point is that this money is NOT available for college expenses, since I have no control over these funds nor the option not to contribute them to this retirement program). Please check into this, because it sounds to me like you have been listing retirement contributions that you shouldn't have to -</p>
<p>Thumper - I dug into my files and found the information that confirms this. Here is the text from Profile customer service rep in answer to my question about whether my mandatory state teacher's retirement system counted as a "payment to tax-deferred pensions and savings plan"
"Thank you for your inquiry. If participation in the retirement plan is mandatory and there is no discretion as to the contribution amount, nothing need be reported on the Profile application. Because of this explanation you will not list the payments to your pension in section K number 55f" . Melinda, Profile, customer service rep."
This answer was sent to me in february of 2004. If it applies to you, maybe you are due some more financial aid dollars$$$$ :)</p>
<p>Anxiousmom,
Thanks for the info -- DH has some mandatory retirement contributions, too -- will have to go back and make sure we don't include those. The folks on CC are such a great resource!</p>
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<blockquote> <p>The amount that is automatically deducted off your paycheck, that is not optional?>></p> </blockquote>
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<p>It is NOT optional...ask any teacher in CT in the public schools...no social security...only CT state teachers retirement and it is not optional.</p>
<p>I'm not talking about the Profile...I'm talking about the FAFSA. The little box on the w-2 that contains my teachers retirement gets added back in.</p>
<p>This is a very interesting and complicated topic. It DOES seem that responsible, hard-working parents who plan ahead and try to save along the way are penalized. My friend (from the OP) casually mentioned that they have money in the child's name--one of the state 529 (is that the right #??) plans. I suggested to her that that's going to be problematic with regard to the FAFSA as a high % of the kid's $ figures into the EFC. I believe that's right, isn't it? </p>
<p>Thanks to all who have contributed related information!</p>