FAFSA Simplified Needs test ? and Annuity ?

Paying for College
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<p>First post. But I've read a TON of posts and appreciate all the information. My head is starting to spin and I need to clarify some things based on our situation. Any help would be greatly appreciated. (Sorry this is so long!)</p>

<p>Married. Two kids. Freshman (h.s.) son and Senior daughter. My daughter is looking at both FAFSA only (Rose-Hulman, UI Urbana and Michigan Tech) and CSS Profile schools. Her preferred schools are Profile (University of Michigan, Duke, Stanford, Vanderbilt). She has a 4.25 GPA (3.93 unweighted). ACT was a 34. And she's number 1 in her class of 197. She is a dual enrolled senior and will be earning 27 college credits this year. Her plan is to be a civil engineer. We are hoping that she gets some great offers for MERIT aid, but know that particularly at the IVY schools schools she wants to attend that won't happen.</p>

<ol>
<li><p>I think we qualify for filing the FAFSA Simplified Form. Our adjusted gross income this year will be $47,000. However, we put money into IRA's and my husband's work 403B plan. Will those dollar amounts be added back in thus making us NOT qualified for the simplified needs test? What is the best current FAFSA calculator that people have found to be the most accurate and not out of date?</p></li>
<li><p>We have some large assets in an annuity that is not through work or IRA/Roth. We cannot withdraw it until we are 59 1/2 without paying a penalty. (Husband is 47 and I'm 45.) Does this mean it is a non-qualified annuity? Does this get recorded on FAFSA (if I don't qualify for the simplified needs)? Do I report this somewhere on the Profile form?</p></li>
<li><p>My daughter has some stock assets that we would like to sell to buy her a car. When we sell she will actually have a capital loss. If we do this then I'm assuming that I will have to file a form 1040 for her. (Otherwise, if we don't sell she doesn't have to file a tax form.) If we do this does this DISQUALIFY us from meeting the simplified needs test? (I should have been smart and done this last year. :-( )</p></li>
</ol>

<p>I've run the numbers different ways for different schools and the FAFSA. It appears that if we do simplified needs our EFC is about $13,000. I'm a stay at home mom. I haven't ever had a company retirement plan to put into so we've always saved the most we could each year but it's been outside of qualified retirement plans. My husband works at a non-profit organization and other than what we've saved on our own through his 403B - he is not getting any retirement/pension plan from his company. We shop at Salvation Army for our clothes, but our house is paid for and so are our two older cars. We don't spend $ because we are tightwads. Unfortunately, that will have all backfired for us because as I run the numbers through Profile (net price calculators) the schools that would have given us full need based rides based on our income, won't give us much of anything based on our savings. Yeah, I know I should be grateful we have some savings, but I would have much preferred designer jeans and T Bone steaks, new cars and a boat, and something other than hand-me down furniture and then have Princeton, etc... pay for her schooling!</p>

<p>Is there any hope for us? Is my daughter stuck going to Michigan Tech which will give her good merit scholarships or other FAFSA only schools since on our income of $47,000 we can't possibly pay $50,000 a year to a college? I love my daughter and how hard she has worked but she is thrifty, too, and will never let us consider depleting what was supposed to be retirement savings to send her to a better college - even if it would mean better jobs for her down the road. (I didn't mention, though, her goal with her civil engineering degree is to work for a non-profit organization in a third world country so she might never make a huge salary.)</p>

<p>Thanks for any help you can give us!</p>

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<p>“Your Guide for College Financial Aid - Finaid” is a site (put <a href=“http://www”>www</a>. in front of it) that will spell out what makes you eligilbe for the simplified needs test. I don’t think you qualify. </p>

<p>As for the stock that is in your daughters name, she can turn it over to you as reimbursement of any number of expenses you paid for her and then it is YOUR asset to be sold or to keep. ANY assets in your daughters name, including the change in her purse are supposed to be reported and will be hit up with a straight 20% onto her EFC. Parents get an allowance, depending on their ages, and are assessed 5.6%$ of their asset value. Make sure your bills are paid and your accounts are as low as they can be on the day you fill out the FAFSA and PROFILE as that is the asset value that is used and you can’t change that because you foolishly or naively picked payday to file. On an audit that value can easily be determined and the rule are very clear how this works. </p>

<p>Contributuions to any tax deferred plans that are deducted from your IRS income have to be added back in. That you are even making such contributions appears to make you ineligible for the SN test, from what I have read. PROFILE does ask for the annuity and if non qualified, it needs to be reported for FAFSA as well. However, certain insurance products structured as whole life type policies, some hybrids have been able to fall between the gaps even for PROFILE. Some PROFILE schools will ask for the cash values of your whole life insurance, however. PROFILE also wants to know the value of any pensions and tax deferred plans, though most schools do not use those values. It is assumed by many, and I feel the same that if a family has what a school considers a huge excess in those amounts, it will be taken into account, but I’ve yet to see any dollar amounts given anywhere, and I fooled around with some NPCs and did not get them to move even with a million in some of them. </p>

<p>Since I don’t think you even qualify for SN, unless your D has income over $6K, I don’t see what it matters with her stock sale. Her assets on the day that she fills out the forms are what are directly hit. SOme PROFILE schools will want the value of the cars, by the way, so putting it in her name may not be a wise thing, not even taking into consideration insurance issues. Yeah, some PROFILE schools would love to get the value of the fillings of your teeth.</p>

<p>I’m not a tax person, so you have to double check all of this. Rules change, and some of the things I am saying are not things I know for sure, but just my take on it. But anything you get from anyone, you should check out yourself and make sure you understand it. With all of the hybrid insurance products out there, it is difficult to tell what is counted as what sometimes.</p>

<p>I’ve run some sample NPRs on schools, and you should do the same for those on your DD’s list, and get some ideas as to what the WORST case scenarios are in terms of what you may be asked to pay. I didn’t see any Ivy league schools on her list, and the only one that doesn’t give merit money is Stanford, though getting any from Duke is a really tough go. However, Duke, Vanderbilt and Stanford all meet need and, from what I’ve seen define it pretty generously. If you are in state for UM, they guarantee to meet full need as well.</p>

<p>You are in a good place in that you have some strong safeties that you know you can afford in place. The reach schools are way up there in terms of need based aid that you are going to get, and the safeties look like they are affordable to you, especially if you are a Michigan resident. Unless you have huge amounts in assets, I think what the colleges are going expect you to pay will be affordable to you even at the schools that don’t guarantee full need, as your DD is way up there in stats. Do run the NPCs. I think you will be pleasantly surprised.</p>

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<p>In general, assets in a legit retirement plan are protected. So are usual life insurance plans. Savings are not. Trust funds are not. The issue of how much you have for retirement is part of assessing family overall financial strength- as I understand it (and there is a line, somewhere in the CSS instructions about this,) the assets are not used for EFC, but it’s an attempt to understand your financial context. (So, agreeing with cpt on that.) To know if an annuity is qualified or non, you need to check with the rep.</p>

<p>This will look like a bear, but it is worth it for families to try, at least once. <a href=“http://www.ifap.ed.gov/efcformulaguide/attachments/091312EFCFormulaGuide1314.pdf[/url]”>http://www.ifap.ed.gov/efcformulaguide/attachments/091312EFCFormulaGuide1314.pdf&lt;/a&gt;&lt;/p&gt;

<p>But, remember, that’s Fafsa, not the private formula each college will run. On CC many parents say their college-calulated family contribution is roughly 25-35% higher, but the final results depend on each family’s particulars. (And, how generous a college can afford to be.) Remember that “full need” is per what the college determines, not from the Fafsa or your own sense of what you need. Having the houe paid off also means its market value is equity. So, be wise when assessing that value. If yours needs repairs, doesn’t have the extras others in the neighborhood have etc, don’t just use Zillow or the like. (And, it is NOT your assessed value.) I’ve been lucky with this site [Federal</a> Housing Finance Agency - HPI Calculator](<a href=“http://www.fhfa.gov/default.aspx?Page=86&Area=State&AreaID=RI&PurchaseQtr=1993Q4&ValuationQtr=2012Q2&Price=115000]Federal”>http://www.fhfa.gov/default.aspx?Page=86&Area=State&AreaID=RI&PurchaseQtr=1993Q4&ValuationQtr=2012Q2&Price=115000) -not everyone is, depends on specifics.</p>

<p>Someone will be able to refer you to the thread(s) about good merit scholarships. In general, when I was in your boat, I found lots of good general info on finaid.org- and many recommend the book, “How to pay for college without going broke” or one of the Dummies books.</p>

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<p>Your FAFSA EFC only guarantees you PELL money for which you do not qualify, state plans maybe if your state has them, and the rest is all up to the school and the amounts in terms of grants. Because your DD’s stats are high, she most likely will do well in financial aid distribution in terms of getting full need met even at FAFSA only schools and other schools that do not guarantee meeting full need. </p>

<p>But if it’s getting more than need met, you gotta look at merit money. I really don’t think you have to worry about any of your qualified pension funds, and with the allowance and the percentage used for parental assets, don’t think the impact will be that big, unless I am total off in apprising what your net worth might be. Some of us played around with NPC’s of full need providing PROFILE schools with a variety of income and asset scenarios, and for families earning under $100K, the aid packages looked pretty good with very rapid spikes once you go above that figure, and that was despite some hefty asset amounts.</p>

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<p>The comment that high stats could mean good finaid, even at a Fafsa-only or from a school that doesn’t meet full need is confusing. It depends on the school, the school’s resources and policies, and more.</p>

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<p>I’m sorry that my comment was confusing, Lookingforward. </p>

<p>When schools do not meet full need, it does not mean that everyone doesn’t get full need met. It means, that only a certain percentage of those applying to such schools get full need met (and it isn’t 100%) and that ON AVERAGE, the need met whatever the percent is reported. So who do you think is getting the 100% need met? In those cases, it is usually the kids with the highest stats or other attributes that the school wants that re getting the good aid packages. </p>

<p>An example is NYU. NYU does not meet full need to all of it’s students. But I personally know of a number of kids whose aid packages from NYU were the the most generous of all. NYU met their need not only fully, but calculated it most generously. Those kids had very high stats, by the way, and often had some geographic diversity and/or other factors as well. So, you can look and see what % the kids are awarded full need and get some idea what your odds that you will get such a package. </p>

<p>A lot of schools do what is called “preferential packaging” and that goes for full need met schools as well. Applicants accepted by Admissions are given a “grade” and when financial aid gets their list of kids, they meet the need of the “A” list with the best grants and packages, “B” gets loans and self help and what 's left of the grants, and the “C” s get what’s left and at those schols that don’t meet full need, don’t get it. </p>

<p>But, yes, all of that does depend on the schools, their resource, policies, etc, but most of them will give the better aid packages to the students they most want and that group most often has the highest stats.</p>

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<p>Thanks for the comments and links. It’s all very helpful. I actually was only about $5,000 off on our home value - I was pegging it at $250k and that website said $255k. Didn’t like to see how a few years ago it was worth $100k more, but I’m not planning to sell anytime soon so that’s okay! I’ve worked the #'s from that EFC worksheet and they aren’t so bad. From that finaid article it appears that we CAN do simplified needs based on our adjusted gross income. It’s a mute point, though, with the profile schools. I’ve looked at the awesome list of merit scholarships - my daughter even applied to Louisiana Tech but only because it would be a full ride. She really has no interest in going there. Keeping my fingers crossed on her application today for a full ride to Michigan Tech. But she’d still rather go to UM or Duke. I guess time will tell! We’ll keep holding out for a great merit scholarship offer but hopefully we’ll get some need based help, too. The concept of “preferential packaging” was new to me. Thanks again!</p>

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<p>The contributions you made to your 403b in 2012 will be added back as income on the FAFSA and Profile. SO if adding those contributions back puts you over the threshold for the simplified needs test…that is that. All you gain from simplified needs is that your assets are not looked at when the FAFSA calculation is done. BUT as noted above, your FAFSA EFC is already above the amount that would make you Pell eligible.</p>

<p>There is NO simplified needs test for the Profile.</p>

<p>Since it doesn’t sound like you have significant assets outside of your retirement account, I’m not sure what benefits you hope to gain by being eligible for the simplified needs test with your current income even without adding the retirement contributions back into the mix.</p>

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<p>I’m with THumpe on everything she wrote. Also don’t you have to file a 1040? If anyone has to file a 1040 this year, that does it for the SN. i think just contributing to a qualified plan makes you have to file a 1040 as does selling any stock.</p>

<p>Also, be aware that the value of the house is the net value after the mortgage is taken into account, so make sure you subtract out any mortgage or HELOC outstanding. </p>

<p>Take a look at UALabama as it offers some nice merit award money, like a free ride for someone with your DD’s stats. UPItt has the Chancellor’s award for which she would be eligible to apply. There are some good full ride awards out there.</p>

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<p>

Actually, surprisingly, that is not the case. The simplified needs test looks at the AGI only. The AGI appears on line 3 of the formula sheets. If the AGI is below the $49,999 threshold (*and *the OP meets one of the other requirements), then they qualify for the simplified needs test. </p>

<p>The contributions and any relevant untaxed income *are *added back in the formula in line 5 to add up to total income in line 7, and total income is used to calculate the rest of the EFC. But for both simplified needs and automatic 0, it is only line 3 (the AGI) that matters, not the total income. It seems like a little bit of a loophole that I keep thinking they will close, but it has been that way for several years now.</p>

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<p>

For a dependent student, only the parents are required to be eligible to file a 1040a/ez, not the student. </p>

<p>Contributing to a retirement account does not make you ineligible to file a 1040a/ez as it is an “above the line” deduction on the return. Many other things do make you ineligible, from basic things like itemizing deductions to weird things like getting a State tax refund from a year you did itemize on federal (yup - I’m still whining about that one 6 years after we got caught by it!!!)</p>

<p>There are other qualifiers for simplified need as well as the type of tax return filed. Dislocated worker, food stamps etc (but always with the AGI limitation)</p>

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<p>Even with what swimcatsmom wrote…what does the OP hope to gain? It doesn’t sound like they have significant assets beyond that 403b retirement account and the stocks the daughter owns. Their income already places their EFC above the threshold for a Pell grant. </p>

<p>What would they gain by being eligible for the SN test…given their income and EFC with that income?</p>

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<p>I don’t know anything about 403b plans, but would someone who is making such deductions going to have to file a 1040? I guess the quesition is more, does anyone in your family have to file a 1040 in stead of the shorter forms. That would make the difference for Siemplified needs test. Depending on the formulas the given schools use for home equity values and if OP has a mortgage on the given value of the house, it’s still possible that even without SN, she will do reasonably well at those schools that use PROFILE.</p>

<p>That there are safeties in place and the student has very high stats, as well as the paernts being in good shape for college preparedness, I think the OP’s DD is in a good place and will have some good choices in the spring. Do start the digging for merit awards NOW as some of them have earler deadlines than the admissions applications and may need additonal information.</p>

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<p>There seems to be a side annuity (or am I misunderstanding?) and we don’t know what the liquid savings adds to. Are all annuities protected? Or only “qualified” (ie, not non-qualified.) The house is fully paid off. But, agree, this is a CSS issue.</p>

<p>Who do I think is getting high finaid at schools like NYU? A select group of kids the school wants most- there is no way I would tell a parent of a high stats kid to assume. We all either have anecdotes about various colleges and some kids who didn’t get what the family needs or we remember threads from thunderstruck parents who believed… This has only abated with the NPCs.</p>

<p>I remember the kid who swore Yale would cost her 4k because that’s all a kid she knew was paying.</p>

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<p>I think a student with very high stats is not out of line applying to a school that does not guarantee to meet need. It would not be wise to apply ONLY to such schools or count on the stats to be a true bonanza. You don’t want to put all of your eggs in one basket. But in this case, I would not eliminate schools that do not guarantee to meet full need from the list.</p>

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<p>Hello. Im new to this. I have some questions that probably have been brought before so forgive me. Here is the scenario. I went with my girlfriend Sara to a seminar on navigating scholarships. OK, he gave an excellent presentation on how his program can help get students funding, scholarships and loans. I was the only one to ask “how much for your service”…So, long story short, she has paid approx 2K$ for his service. She know is being advised to buy a whole life insurance policy to shelter assets. She has approx 50 or 60K$ total in taxable accounts ie, money markets which includes the monies saved for her two kids for college which will be coming up in a year or two. The one girl is very smart and ranks 10th in her class out of 400. So, I went to this meeting with her the other day to meet the advisor. He was filling out the insurance application. He asked me if I had questions about the whole life policy. I understand that it can be used to shelter monies to get better financial positioning for loans, etc. My first questions was “Are you acting as Sara’s fiduciary?” and he said “yes”. My next question was, “are you making a profit if Sara purchases this whole life policy?” and he said “yes of course”. Well, to me that is not acting as fiduciary. But my other questions which I didnt bring up because I was frustrated at that point but did not want to upset the apple cart is, what other options does she have to have a better “ESC?” See desperately needs a new vehicle for starters. What if she paid off a new car? Would a new car be considered an asset? What if she paid down her mortgage? Thoughts?
Thanks
Paul V</p>

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<p>She would have done better to save the $2,000 toward paying for college. Eligibility for FA is much more driven by income than it is by assets except when assets are high. $60,000 in savings will not have much impact at all on financial aid. For a start, FAFSA gives a certain amount of asset protection based on the parent’s age. Then the maximum effect the remaining unprotected assets would have on the FAFSA EFC would be 5.6%. </p>

<p>The primary home is not a reportable asset for FAFSA. So paying down the mortgage might be a good idea.</p>

18

<p>I hate to say it, but I think your GF got
ripped off. Most of the best scholarships come directly from the colleges. </p>

<p>I agree with Swimcatsmom. That money could have better been spent on college costs.</p>