<p>We recently sold the house and decided to rent a place. How does it impact the financial aids as there would be additional cash sitting in the bank account? The total asset will be more or less the same, but instead of equity of a house, it is in the form of cash.</p>
<p>What would be different for someone owning or renting a house?</p>
<p>Approximately 5.6% of the value of parental assets is applied to EFC – so if there is $200K in the bank from proceeds of sale, it would raise the family’s EFC by roughly $11,000.</p>
<p>The difference is that the equity in your home is not considered at all for FAFSA and schools using Profile may also exclude or limit their use of home equity in aid calculations. If you are planning to use some of the proceeds to pay other bills or make other purchases it would probably be to your advantage to do so before submitting FA forms (which ask for the value of your accounts on that day, not the year-end value).</p>
<p>For the FAFSA EFC it would make a big difference. A house (primary home) is a protected asset that does not have to be reported so does not affect the EFC. Cash in the bank is not a protected assets and does have to be reported so will affect the EFC. As calmom said, roughly 5.6%.</p>
<p>Post #2 sums it up. Equity in the primary residence is not counted at all by FAFSA as an asset…but money in the bank IS. Equity is usually limited on the Profile, but money in the bank is not. </p>
<p>Bad timing…any chance the family will be buying a new house soon? They say it’s a buyers’ market.</p>
<p>To put it bluntly you will get screwed. See a financial advisor. put it all in a 401(k) and make your child apply to a FAFSA only school. You can always take it back out to buy a new house.
If you have capital gains on the sale - this will increase your income on your tax return and you will lose. sorry.</p>
<p>You can’t put a lump sum of $200K into a 401k. The limit for 2009 is $16,500 if 49 or under, or $22,000 if 50 or over. This is assuming the parents don’t already have a 401k through their employer that hasn’t been maxed out.</p>
<p>Limits on regular and Roth IRAs are even lower.</p>
<p>Capital gains on house sales only kick in if the sales price of the house is $500,000 more than the purchase price (minus the costs of the sale plus cost any improvements done to the house). That $500k is for a married couple; for a single owner it’s $250,000. With $200K in proceeds, it’s unlikely that capital gains tax will be an issue.</p>
<p>Why not put a large portion in a 529 account with a child or grandchild as beneficiary, it will be treated differently by FAFSA. You can also put in a retirement account.</p>
<p>vballmom - right but you don’t know that the gain is $200,000. hence my advice to see a financial advisor. a 529 plan would would too.
where does the OP say there will be $200,000 in cash? perhaps they don’t have any retirement and they are over 50. there also might be a mortgage or two to pay off.</p>
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<p>The retirement account idea is good. A combination of IRA’s and annuities would remove it from all FAFSA consideration and often discounted for profile.</p>
<p>The 529 account wouldn’t make a difference in treatment. It will still be assessed as the parent’s asset.</p>
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<p>As others pointed out this will not work. And any money put into any retirement account the year prior to your student starting college gets added back in anyway.</p>
<p>Why are they screwed? They now have available funds to pay for college. Why do so many think someone else should pay–the government, private donors–anyone but the parents!</p>
<p>Agreed…a portion of this money should be used for college expenses. The family should be grateful they have this money. Some should be put into a retirement account, some can also be used for college expenses. The amount for college expenses will NOT be the entire amount in any event.</p>
<p>hmom5 - it only counts for year 1. Hopefully the child will be in school for more than one year. Then it will be tucked away and won’t be like money in the bank.
Anyway - maybe they don’t really have “funds for college”.
Just because they sold their house doesn’t mean they don’t have other obligations. Perhaps they want to buy another house in a year, or next summer after the FAFSA is due.<br>
don’t judge when you don’t know the facts.</p>
<p>Perhaps the most prudent thing is to send the kid to a community college for a year and let the windfall ride.</p>
<p>If they want to buy a house in another year using these profits, they really should know that part of the profits in the bank WILL be assessed as parent assets for college. </p>
<p>In the OP, the poster says that the equity will now be in a bank account instead of in the house. That implies to me that this is the balance (whatever the amount) AFTER all loans for the house are paid off.</p>
<p>What will only count for year 1?</p>
<p>Knowing the facts or not, what I do know is education is or isn’t a priority for a family. Many families dig deep into home equity to pay for a private colleges while others with equal resources send their kids to community college to save money.</p>
<p>It’s all about choice and priorities when the cash is indeed there and someone is asking how to protect it from colleges. I’m not judging the choice not to spend a lot on college–everyone should spend their money as they please-- I’m questioning why so many think it constitutes “being screwed” to expend the family resources on education. </p>
<p>We contribute generously to colleges, and I hope my money is going to kids who really need it.</p>
<p>Agreed. We also used home equity loans to help our kids. If we had sold our house, the money would have come out of that equity as well.</p>
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<p>I assume the poster meant the income derived from the sale, not the asset value.</p>
<p>I misread another post and assumed there was a $200K gain, my mistake. I don’t think the OP mentioned how much the gain was. Regardless, it’s difficult (but not impossible) these days to have so much gain on a house that federal capital gains taxes kick in.</p>
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<p>Surprised to hear that from a resident of Silicon Valley where in some towns, prices have not dipped at all!</p>
<p>Well, I’m guessing most of the country isn’t like Silicon Valley ;)</p>
<p>But in fact my neighbor sold his house last week with 7 offers. He’s owned the house for 20+ years so there’s no doubt he’ll be choking when he pays Uncle Sam his capital gains tax.</p>