‘Something’ that happens in the tax year (usually 1/1 to 12/31) will be considered. I don’t know what you think will happen (sell a property? take a distribution?), but yes, something that happens in Sept or Oct will be considered when FA is awarded. Some schools use 2 tax years.
It sounds like your father transferred $500k from one 401k account to another. That’s fine and not a taxable event, but if he has $500k in an asset account that is not a qualified retirement account, then it is just an asset. The school doesn’t care that there would be a penalty to withdraw it, that is isn’t a good idea to sell a rental property, that you don’t want to sell stocks at a bad time, that you really need that money in a savings account for retirement. It’s either is in a qualified account and exempt from assets or it isn’t.
If you can’t figure out what assets or income your parents have, you should apply to schools where you’ll get a big merit award as well as Harvard and others that award only need based aid. There are lists of them pinned at the top of this page.
@twoinanddone What would it mean if the 500k went into a retirement account?
Also, where would the money be for it to be exempt from assets?
I’m going to ask my parents later where the money went, as it sounds like it went to a retirement account but my father swears that it is an asset.
So if I’m applying to college the fall of 2015, does that mean everything that happens 1/1/2015 to 12/31/2015 will count towards my evaluation for financial aid?
Most retirement accounts are exempt as assets on the CSS and FAFSA. But it has to be qualified account it, not just your father saying it is for retirement. We can’t tell if the account is a qualified account. There are limits to how much one can contribute each year. If he only makes $75k per year, that’s a lot to have in a retirement account. It’s your father’s money, if he thinks it’s a non-retirement asset, it probably is.
Yes, everything from 2015 will be on your CSS and FAFSA for the 2016-17 school year. You will file CSS using the info from your 2014 taxes (filed in 2015) to estimate and then file FAFSA on 1/1/16 using info from 2015 taxes.
So…is ALL of your family income from those rental properties? If you get $6000 a month in rents, that would be $72,000 a year in rents. If your dad currently earns a salary from a job, what is THAT amount…because if it’s $75,000 a year, then your parents are taking a LOT of deductions on their rental properties. While these are likely allowed for IRS tax purposes, they might NOT NOT NOT be allowed for financial aid purposes.
If the $500,000 whatever it was (since you are unclear about that) happened in 2014, it will NOT be included on your 2015 taxes which will be what you use for the 2016-2017 school year financial aid forms. IF this was a rollover from one tax deferred retirement account to another, then you have no issue anyway. But if this money is invested in anything but an authorized retirement account, it will be an asset. You need to find out what happened for sure…if it was a rollover…no problem. Regardless,math at happened in 2014, so will NOT be on your 2015 tax return at all (that tax return needs to be filed ASAP after February 1, 2016, so you can complete your financial aid application forms with a completed tax return).
Now…about those rental properties…what is the equity in those properties? The equity in those properties will be viewed as an asset. Some of the deductions taken could be added back as income. Need based aid is not awarded so families can retain ownership of several properties, none of which are their primary residence. It just isn’t.
There is an old saying “garbage in, garbage out”. Right now, I feel like I’m getting garbage IN information. So please view my responses with a grain of salt until you get the facts all straight.
@thumper1 Ok thanks for the info. The money was put into a qualified retirement account so I guess that doesn’t count.
Home equity is around 500k (that’s the amount we have paid off so far if that’s what equity means), does it matter if you sell a home? My family was already thinking of selling one of the houses because it’s basically hitting its peak price right now, but does that change anything?
You need a plan that includes colleges giving very generous merit aid, because it’s not at all clear what sort of need-based aid you will receive and it’s also not clear what your family will be able to pay.
OP- you sound like a great kid and I wish you luck as you sort through this.
At the end of the day, all the talk about assets and equity and all that jazz is somewhat irrelevant to your situation. If your parents say they will pay X per year for you to attend college, the fact that a financial adviser might have some suggestions on ways to tap into their assets and equity to yield twice X doesn’t help you. You have X times four to work with.
There are dozens of merit threads on this board that you should look at. The experience of some other kid won’t help you (every situation is different) but you can then go to that college’s website and see what the requirements are to get AND KEEP the big merit awards, and then see if your numbers put you in the running. You will need to explain to your parents that your application costs are going to be higher than they may have expected because you will need to cast a wide net to make sure that you’ve got some affordable options next year. And you need to make sure that you are using your “secret sauce”- be that ethnicity/race, country/language of origin, your stats, where you guys live, etc. to maximum advantage… You may not be an under-represented minority in your own region or state, but head off to Vermont or Minnesota or Oklahoma and it could be a different story entirely and there could be terrific colleges who’d love to give you merit money to get you to attend.
Since it’s anyone’s guess how schools are going to handle all of those issues…money put into a retirement acct, two homes, rental income, etc, you need to prepare in case you get little aid.
Apply to the top schools that you want, but also apply to a few schools that give huge merit.
Yes I will definitely look at the colleges on that list. I am a US citizen.
About what my parents are willing to pay: It’s a bit weird.
They say they’ll tear an arm off if I get into Harvard, but they won’t pay a penny for a college they deem ‘bad’ which makes it kind of hard because even if I get a bunch of money, I’ll still have to pay a sizable chunk out of my own pocket.
Thanks a bunch for that list. I will be looking at that and talking to my schools college specialist (she handles all the scholarships and stuff) and see if I can get some outside scholarships.
If my parents sell their homes, does that make any difference towards my financial aid?
They were thinking about that but might hold off if it means my EFC goes up.
Yes, it will be income from the financial aid perspective.
From all the bits and pieces I think that you might not be in line for much if any financial aid BECAUSE your family’s assets are substantially larger than “normal” for a family in your income bracket. The real estate is likely the big kicker.
So, one strategy: apply to all the reachy, reachy schools you like (or that you and your parents like), and if you get it, perhaps they will be willing to pay full or close to full costs. And, apply to at least two colleges where the costs are definitely within whatever they say is workable. And then, apply to some colleges where you might be in line for a large scholarship.
This is a lot of work, but when it is very hard to get parents to share enough financial information, or parents say that they’re willing to pay up for colleges A, B, or C, but not D, E, or F, it is a more challenging proposition.
I can see the difference between a family that chooses to put a hundred thousand (for example) in estate and a family that doesn’t have it to begin with, from a need based perspective.
Doesn’t make things easier or better for the OP, though.
@austinmshauri Ok never mind then. I have no money. @thumper1 No my parents don’t sell houses as a business. We moved from another state a couple of years ago so we had a house there. But yeah, I don’t think they can sell the house as they have it currently rented out.
I checked out Berkeley’s financial aid calculator, and I saw that real-estate equity did not count in terms of assets. They only wanted cash, investments and stuff like that. Does that mean I’m kinda in the clear for Berkeley at least or does anyone have different experiences.