<p>Is it possible to move portfolio funds to a retirement account to lower that value for the FAFSA application???? If so, is that a worthwhile strategy to lower EFC??? Can this be done by reallocating moneys to an annuity??? (or some other IRA type account...)</p>
<p>Any money you put in your retirement accounts in 2013 will be added back as income on the FAFSA for that year.</p>
<p>Example…money added to your retirement accounts in 2012 are added back in as income on the 2013-2014 FAFSA.</p>
<p>There is also a limit on how much you can put in certain types of retirement funds annually.</p>
<p>What I do NOT know is how this change in accounts would be handled…as it sounds like you have already paid taxes on this money in previous years.</p>
<p>I am talking about money that is not currently in a retirement account .Taxes have been paid on these investments according to income.</p>
<p>It seems according to the IRS that you cannot contribute more than certain amounts (in 2013, 5500 if you’re under 50, 6500 if you’re older) without incurring a 6% penalty.</p>
<p>[Retirement</a> Topics - IRA Contribution Limits](<a href=“http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits]Retirement”>Retirement Topics - IRA Contribution Limits | Internal Revenue Service)</p>
<p>I think this is regardless of whether you already paid taxes on the money, but please correct me if I’m wrong.</p>
<p>If you don’t mind the money being out of reach until you retire, it might make sense to move some assets there, as long as there’s no penalty.</p>
<p>Sammy, it’s really hard for anyone to say without looking at your kids’ college possiblities and list , and your total financial situation. To focus on maximizing need for college, reducing the EFC, is not something that can usually done in a vacuum. I don’t have tax expertise at all, but let me give you some thoughts here.</p>
<p>First of all, unless you reduce your EFC to a point where it is very low, the chances of getting a lot of money from colleges is very small. With a zero EFC, you get $5550 PELL grant money. That is the only guarantee that a zero EFC will give in terms of grants. And because income is what primarily drives up the EFC, unless you are very low income, reducing your assets may not do anything. I believe below $23K and the ability to use a short form for tax filing will give you an auto zero and not consider your assets. But typically the EFC hits up income at around 20-40%, depending on how much you make, and assets at the max of 5.6%. In NY, we do have state grants as well, but the max there is about $5K also (the income threshhold to get some of this money is higher however than PELL). Can you give us some idea what your AGI is going to be? A lot of people go through all of these contortions and all they may end up doing is making themselves eligible for subsidized vs unsub Stafford Student loans and some work study. </p>
<p>The fact of the matter is that most schools do not meet need. They don’t care if you have a $10K EFC or $60K. They aren’t going to come up with the money. Take a look at the Common Data and you can see the average need met for kids at the schools your student is considering. Unless you are looking at schools that tend to meet full need the chances are, that lowering that EFC isn’t going to do a bit of good. And those schools use PROFILE which may scrutinze your situation even more to a point where getting big money from them is not likely. </p>
<p>I suggest you run some sample EFCs using the estimator and fool around with some numbers and see what it does when your asset figure is reduced. Also if the schools your student is eyeing require PROFILE, look for a school that meets full need, no merit and run a NPC for them and that’ll give you some idea what you would be expected to pay under that scenario. Then also run the NPCs for the schools on your student’s list. Be aware that if the school gives out merit money and/or does not meet full need, the numbers are averages and may not pertain to your situation. Running it a like school that does meet full need and has no merit gives you a clearer picture of what is possible to get in such a scenario. If you have your own business, the NPCs are not accurate at all.</p>
<p>As for ANY money you put into a qualified plan such as 401K, IRA, yes, you do have to add that contribution back to your income. Yes, I understand that you are talking about money that is not currrently in a retirement account and that taxes have been paid on that money. But the way FAFSA and other forms look at ANY contribution made to these plans, is that they are a reduction of income that they do not recognize. So if you are allowed to deduct that contribution, then you have to add it back in. That it isn’t coming from your income flow but from an account that’s “bought and paid for” makes no difference to them at all. I believe, but am not sure that Roth IRAs have some strange rules even though you get no dedictuion to contributions to them. Check that out because that is a hybrid that is treated like an IRA by FAFSA even without the tax preferences that IRAs have. But 100%, if you get a tax break in putting in the money, you have to add that contribution amount to your income, which is a bigger hit being treated as income than what you save with it as a sheltered asset. You have to do this BEFORE a year that the FAFSA is examining.</p>
<p>By transferrring money to a 529, you can, in some cases, get state tax savings depending on your state, and how you do this. </p>
<p>I just looked up Roth IRAs and you do not have to report contributions to them on FAFSA. They are subject to limitatiions on contribution amounts with the max about $5500 (they love that number range for some reason). So you can MAYBE shelter some money that way with everyone in the family that can, stashing money in there. But that’s a lot of contortion to go through to MAYBE save that 5.6% asset hit on EFC that may be for nothing. </p>
<p>What are your number ranges in pay, assets, and some colleges your student is eyeing? With that info, some of us might be able to help you.</p>
<p>Parent…I believe you are talking about IRA limits. 401k and 403b limits are about $20,000 a year max contributions.</p>
<p>If you can contribute to a roth 401k, that may be your best bet - but understand it is then untouchable. You don’t want to pay the penalties for removing the money before retirement.</p>
<p>Otherwise, Roth IRA is probably your best bet, because of the ability to take it back out to use for education, without penalty. If you shift assets from an investment account into a regular IRA, it would be as if you are contributing you current income, and then using the investments for living expenses. It still might not be a bad strategy if you can capture some capital losses at the same time, because that will lower your AGI, while the contribution itself will be recaptured on the FAFSA. Thus the shifted assets would lower the available assets, and the capital loss would lower income. Of course the capital loss could be captured without shifting money into a qualified plan, too.</p>
<p>The best strategies are things that are done long before you’re ready to fill out the FAFSA</p>
<p>cptofhouse gave a pretty detailed and thorough reply - I’ll just add a few points. First, as was said, this can’t be answered in a vacuum. Much depends on the type of school your child is likely to wind up applying to and being accepted at. Some use just the FAFSA and some ask for much more detailed financial info on the CSS Profile. Profile schools are usually the ones giving out lots of NEED BASED aid. For schools that give great MERIT aid, all the financial shifting around may get you zip extra.</p>
<p>It also depends on when your kid or kids will be attending, how old the parents are, all your income and asset info, property ownership, business ownership, etc. All else being equal, yes, money being in a retirement account when you submit the FAFSA is better then in your checking/investment (non-qualified) account. However, as has been said, in the year you make the contributions to the retirement account, IF PRE-TAX (401k, most IRA’s, 403B, etc.) then you get a TAX deduction, but it comes back as income on the FAFSA for that year. So, if $10,000 was put into a 401k at work pre-tax during 2012 and your TAXABLE income is winds up at $90k; your 2013 FAFSA (based on 2012 income) will still show the $100k total income you earned. Now, for the 2014 FAFSA that money in the retirement account will no longer count on FAFSA.</p>
<p>It’s complicated, each case is different, many “college planners” are really just trying to sell annuity type products conning parents into thinking they’re getting over on the college aid process… only to find out it didn’t help them get one nickel of aid. Sometimes shifting assets is useful, often not so much.</p>
<p>If you’d give some details I’m sure you’d get some more specific advice.</p>
<p>@cpt, your response pretty much answers my question. It doesn’t seem that lowering portfolio value will do much good compared what it would cost in time, money, and the reduction in resource flexibility. (meaning money that would have strict restrictions once allocated to some sort of retirement account…)
The idea of using an estimation tool is a good one. With yearly income numbers, I would suspect (from your comments) that our EFC would not get lowered by an appreciable amount, hence the cost vs gain does not seem very attractive.</p>
<p>Play around with it Sammyhawk. At least see what your EFC will be. You have an asset protection alllowance ranging from $40K as a married parent (lower for single) and it goes up with the number of dependents and the age of the older parent. But bear in mind that EFC only guarantees you PELL if it 's way low, which I have a feeling is not the case for you, and for your kid to get Stafford loans ($5500 freshman year) and so you can APPLY for Parent loans (approval not guaranteed). Your state and the school you pick will determine the rest and really, most schools do not meet need so it doesn’t mater what your EFC ends up being. </p>
<p>There is a lot of complaining about how low income kids “have it made” with the manna of finacial aid pouring down on them, but iit’s a myth 99.9% of the time. The only time that happens is when such a kid is accepted to a school that is generous with financial aid, and there are aren’t that many of them. Because even those who guarnatee to meet full need, have this little kcker in that they define that need. It is not the FAFSA EFC they use but their own calculaions usually involing PROFILE which really goes after Every Friggin’ Cent. So, yes, a very low income kid with very high test scores and grades who gets into a school like Harvard, Colgate, UVA will get 100% of need met, though in some situations that means loans, work study, plus most schools have some form of required student contribution. But the vast majority of low income kids get gapped. Their need is high and they get gapped. That tiny niche of highly qualified low income kids gets more attention than warrented, given the small % of the college population they make up.</p>
<p>Most of us are in the situation where the EFC says we can pay most or all of it certainly more than we want to pay of it, but due to the fact that we wanted to buy a higher quality lifestyle with our money and save it, we are deemed able to pay. And we are, but it may not be the smart thing to do. Though, yes, we could come up with a $60K per year payment, to do so would be financially irresponsible in terms of other aspects of our livesin areas such as emergency planning, retirement, quality of everyday life, siblings lives, etc and fiscal stablilty. </p>
<p>Also PROFILE does ask for the value of these 401k and similar accounts. Most schools say they don’t hit up those funds in the calculations but eyeball them in case they are excessive to the point where they feel they should be used, but 'I’ve yet to see any number as to where that point is. So those funds are not necessarily sacrosanct anyways. I know at last a few schools that do use them in calculating family required calculations.</p>
<p>cpt makes some good points on the myth of “low income have it made” when it comes to college funding. Here’s the reality… the few private schools that give enough aid for low income kids to be able to afford to attend are not attainable for 98% of the low income kids. Ivys and the rest of the “meet need” schools can present themselves as the generous helpers of inner-city minorities and look like wonderful humanitarians to the world…except one problem - very few inner-city kids have the stats and EC’s to get in! Yes, it IS generous of them to offer close to full rides ($50k+ value for 4 years) but check out the standardized test results for ANY decent sized city in the U.S. Only a small % score over an 85% for math and reading skills, much less the top couple % that make it into the most selective schools.</p>
<p>Don’t get me wrong, I applaud those schools for offering the opportunity to the very low income kids… but few can take them up on it.</p>
<p>The truth is, most get “gapped” as cpt said above, at least for the private schools.</p>
<p>I went through a couple of EFC calculators. CPT was correct in the assumption that the EFC would not come down to a low enough number to warrant any Pell Grant status even with a $0 portfolio balance. The EFC still remained at a level that is higher than the yearly costs for the colleges my daughter is considering. </p>
<p>The interesting thing here is that our experience is pretty much the same as has been reverberated here over and over. Private colleges make a good effort to bring down tuition costs to those levels that are ballpark to local state colleges. (in this case California…) With their acceptance letter a private college on the east coast immediately offered her scholastic scholarship money that would bring the costs to about 10% more than a University of California school. (definitely ballpark…)</p>
<p>So, my expectation is that the state schools (in state and out of state…) would be a tougher cookie for money extraction. Everyone talks about college costs being “negotiable”, but where do we go from here? Haven’t received any financial package information or mention of money from any school except the aforementioned east coast private school…</p>
<p>I want to thank everyone for their input. This has been very helpful.</p>
<p>College costs are not negotiable most of the time. it’s just in very few cases that maybe one can discuss a financial aid package. This happens if your kid is accepted to two like colleges, and one give more money/better package than the other. You can then ask for a reconsideration bringing up the other school. Some schools, notably Carnegie Mellon out and out, say to bring a comparable package from a like school to the table if adjustment might seal the deal. But these are few examples in a few situations and do not reflect the experience that most of us have in the admissions process.</p>
<p>In all but two cases, the least expensive schools for my kids were our state schools. My one son did get a full tuition scholarship from a small local Catholic colllege. Another got an athletic award from a school that would have been a safety school for him in terms of academic stats. Otherwise, the best deals were our state schools. My one son got many merit awards–he applied to a lot of colleges, but they were all under $5K which did not make a dent in most of their very high costs. Another got a $30K award, but it was one of the most expensive schools out there, so even with that award, full pay at a SUNY would have cost less. </p>
<p>As a rule, any school with name recognition is going to be a tough go in getting significant merit money. Like tougher than getting into HPY statistically. There are a few exceptions, but that is basically the way it works. That’s why I hate the articles and assurances on how there is alot of money out there. Not really. </p>
<p>It’s getting tougher too. When my oldest was looking at colleges, for example, Pitt was a school that had some great awards at test score levels that were not out in the stratosphere. Plus getting into the Honors college was not so difficult either. No more. I looked at what you need for consideratin for the big awards and Honors. Those are kids who are definitely highly selective school material They’ve also cut down on the number of awards. </p>
<p>The best way to get some serious money is to apply to schools where you are one of the top candidates. If a school gives out merit money to 20% of their kids and the average award is $5K, you need to ferret out how many big awards they give out. If the number is 10, you know your kid has to probalby be one of the top 5 stats wise for a shot at one of those since some of those awards are earmarked for certain special things other than test scores/grades. Even that doesn’t always work. I’ve stated a number of times the case where one of the top students in this area with nearly perfect test scores was passed over for a BC scholarshp. Her outraged father wanted to know what the heck one had to have to get one of them, and was told that the school gets so many kids that fit her profile, Cathollic school girl from the eastern states that they were not about to pay for one of them. The line goes around the block. Now the California gal, they might dish out some money for her. But half tution at BC is still going going to be a hefty total cost to anyone with the COA being up in the $60 range. The Californian is still going to do better paying full freight at a UC. Now if she had applied to East New Mexico College or like school, maybe a full ride would be in the picture. Take a look at the thread for those schools with guaranteed scholarship parameters and you’ll see that there are not too many name brands in that list.</p>
<p>SammyHawk, while it may be too late, my previous research showed exactly what others and yourself are saying, many of the privates that do give some type of academic merit simply bring the cost to attend in line with the UC’s or slightly above the Cal States. Every time I ran a calculator the cost of attendance came out to $23 to $27K, regardless of the type of institution (note that my son was eligible to receive the top merit scholarships at most of those that we could get merit aid info on).</p>
<p>That being said, that’s when I started looking at the thread in here about Full Scholarships at some colleges which may or may not have quite the academic standing as many of the UC’s/ but did have some specific departments within those schools which were fairly highly rated (depending on what your son’s prospective major). So, you may want to take a look at that thread to see if any of those schools are of interest.</p>
<p>You can also google non-residential scholarships"" to find out if any of these schools, typically public schools in other states, have this type of scholarship available. I was successful in finding several and my son was given a Full Scholarship for Tuition and Fees, since that college seemed to be seeking high achieving out of state kids. Thankfully, they were also rated as a top 20 school in the area he wishes to study. </p>
<p>Don’t know if it’s too late to jump on that train, but it’s worth a look. Note that I am in California also and while my son will more than likely get accepted to three of the top UC’s, and the top State school, all would have cost me at least $25k to $30K with room and board.</p>
<p>SammyHawk, </p>
<p>My son attends our large state flagship. Last year, after the initial FA offer came, my son’s FA included a $5000 state need grant. Shortly after that the school asked for our tax forms for the FAFSA verification process. I had no concerns at all because I knew I’d filed my taxes and filled out our FAFSA forms honestly and accurately, and sent in the forms immediately.</p>
<p>During their review process though, they discovered that I’d transposed two digits in our taxes paid on the FAFSA form. (i.e. I reported 1933 paid when we really paid 1393, or something like that) So, our EFC went up a measly amount. No biggie right? </p>
<p>Except, the EFC cutoff at DS’s school for state grants was an EFC of 12,000. After the recalculation, our EFC was $122 over the limit and the grant was canceled. Apparently all the kids under the $12,000 limit got X amount and the kids’ whose EFC was over the cutoff got zilch. There was no sliding scale. </p>
<p>It took me several days to sleuth out my mistake and realize (with the help of CC’ers) the consequences of the change. </p>
<p>The worst part of the whole thing is that IF we’d cleaned out a paltry amount of money in DS’s checking account right before we submitted the FAFSA on Feb 15, we would have still been under the limit. DS used the last of his funds to pay his March rent 10 days later. I thought about having him pay rent early, but thought “How much difference can $600 make?” Stupid $600 mistake #2.</p>
<p>Moral of the story: every penny MIGHT make a difference. If you can contribute to an IRA, you should be doing that anyway. Get it done before submitting FAFSA.</p>
<p>Yup. I tell every kid and parent filling out the FAFSA to have the kid zero out EVERY CENT of his assets possible by reimbursing parents for college app costs, senior year expensies, living expenses because every dollar the kid claims as an asset gets a 20 cent hit on the EFC. A close friend of mine whose son she has assisted over the years is now independent and back in college and is eligible for PELL and other goodies since he is now over age 24. He had about $9K saved up. That’s $1800 right on the EFC right there. Had about another grand in checking since he filled out FAFSA right before he paid his bills. $200 on the EFC. That practically comes directly off the PELL money. And for parents, before you run those numbers make sure you have paid your bills too, since if audited, they will look at your acccount balances as of that day, and too bad if you just got an insurance settlement that you used to buy a replacement car the next day. Though the parent account hits are not as bad, there are state plans that have cliff dropoffs for eligibility. </p>
<p>EFC is truly Every FRiiggin’ Cent.</p>
<p>cpt-your posts indicate you have a lot of experience with FASFA and CSS profile and need to tap your wisdom. I finished filling out both and will file my tax return next week. What is the difference between IDOC income verification for the CSS profile and the IRS electronic data retrieval tool? Are they both basically the same thing? I think the IRS data retrieval is all electronic, one I give authorization, right? But this IDOC thing confuses me, sounds like I have to collect LOTS of paperwork (I’m not the most organized) and mail it in by snail mail.</p>
<p>I don’t know much about PROFILE. So many different rules, depends on the colllege. When it comes to verification, you have to do what the colleges say. The IRS retrieveal tool is relatively new, from what I understand, so a lot of these things are works in process. I was selected for FAFSA verification just for a unsub loan one year and had to send a whole packet of stuff including copies of tax returns to the school.</p>
<p>If your schools use the IDOC service, you will receive directions on what to send to IDOC and when. Keep a close eye out for this information and send the required submissions quickly. I haven’t used this in years, but when we did it, we had to copy all of the documents and mail them. </p>
<p>I believe IDOC is used only by some Profile schools.</p>
<p>The IRS retrieval tool is an electronic link of sorts between your filed tax return and your FAFSA form. It is used to verify that what is on your FAFSA is consistent with your tax return.</p>
<p>Two different things…IDOC and IRS retrieval tool.</p>
<p>Thanks for the info, the IRS retrieval tool sounds simple, it’s the IDOC part that I’m dreading because as I posted I’m not very organized. I received a letter from F&M that I would get an email from College Board about the required documents but I haven’t gotten one yet. I guess I’ll just start collecting everything I think I’ll need until I get the actual email from College Board.</p>