<p>Just filled out the FAFSA for this year, and the EFC is almost $2000. higher than last year. A little bitty raise for me, little bitty raise for DH, and a little more equity built into house, plus DD earned a couple of thousand dollars last summer - all that doesn't seem to add up to 2 thousand more that we can cough up! I was wondering if much of that rise in the EFC comes from the Federal tax credit - we got almost $2000. in a Lifetime learning credit. Is anyone else seeing the benefit of the tax credit go bye-bye with a raised EFC???</p>
<p>I think that the tax credit is not supposed to be counted against you. The difference may well have come mainly from your daughter's earnings. Amazing how it does rise up to bite ya. Earn more, pay more. And of course, the colleges expect that the student will make that contribution. It will be interesting if you get similar raises NEXT year and she makes about the same amount next year to see if your EFC stays the same.</p>
<p>I think some of the problem is that she is so frugal with her money that she still has much of her earnings from last summer still in her account. Maybe next year she should spend her money faster!</p>
<p>35% of $2000 is about $700 of that EFC increase. Better she spend every bit of it on tuition, reimbursing you for your tuition payments and letting YOU accumulate a savings account to give to her as a graduation gift since you are only assessed 5.6% on any accumulated assets.</p>
<p>Maybe someone can help with this. My sister has 2 kids in college. Her husband's uncle wants to give them $30.000. They don't know how to deal with it. Both kids are on merit scholarships and some financial aid. (They're not rich but got lucky with a house purchase so have a bit of equity in that.) Both kids work part-time also. </p>
<p>What's the deal on gifts? They're close to the 30% tax rate. Should they ask the uncle for three $10,000 checks and split them up betweenn the family members? Get one check, pay the tax and forget about it? If he gives the $ to the kids will it all go to reduce the amount of fin. aid they'll get? My sister swears the FAFsa doesn't ask for the amount of $ in the kids accounts so she thinks she'll split it between the kids. They both want to go to grad school so would like to save at least some of the money for that. Any ideas?</p>
<p>Your sister is abslutely wrong. FAFSA certainly asks for the amount of $ in the kids accounts and 35% of it goes right towards the EFC. So not only would the gift be reported and assessed as income; if it accumulates in the kids names, it goes right towards the EFC, and yes, it will reduce financial aid. by atleast $10,500 between the two kids. If the intent is for it to go towards grad school, he should put it in an account designating it as such and present it to the kids upon graduation. Perhaps some sort of 524 account will do, as the account will not be counted as the kids' assets, but then it can only be used for educational purposes. Gift tax is paid by the giver, not the recipient, and I believe the limit is $11,000 per person. What he could do is give each kid the money in two parts-one in first semester senior year, when that kid is no longer going to file another FAFSA, and then the rest second term or graduation--you split it into two tax years that way, and it does not show up on parents statement for FAFSA for the kid still in school.</p>
<p>Thanks Jamimom, and Anxiousmom, sorry for hijacking your thread.</p>
<p>The uncle can pay the college directly without regard to the $11,000/year limit - he just can't give it to this family and have them pay the bill. This is one of the exceptions built in to the gift tax rules.</p>
<p>Scma is absolutely right. Check with an accountant and you'll see: money paid directly to the school (check made out to school name) does NOT come under gift tax.</p>
<p>Also - again, check with accountant - at least when opening a 529, you can give up to FIVE YEARS gifts at once with NO gift tax. My kids' grandparents opened 529s for each kid and started with $55,000 each. They can't put any more money into those accounts for five years, but they can still pay directly to the school.</p>
<p>Thanks again. I just thought about that and came back to ask that very question about paying it directly to the college.</p>
<p>There are many ways around the gift tax issue. It's the college financial aid forms that can be an issue. If someone pays your kid's tuition even directly to the college, I am sure that gets reported on those forms and the aid is adjusted accordingly. That is the true bugaboo of a financial recipients. You are supposed to share any and all windfalls with the college.</p>
<p>fwiw: if uncle is married, then I believe each person can gift $11k, i.e., uncle and auntie, so giftable is $22k...</p>
<p>is it possible for uncle to setup 529, in his name, with nieces/nephews as beneficiaries. Leave money in until grad school, or until senior year, and use to pay down any loans accumulated, thereby bypassing fafsa, since kids already receive some merit money.</p>
<p>I don't think their financial aid is very much anyway, so it would probably be worthwhile to pay the money to the college.</p>
<p>Jamimom; I've got a question that you might know the answer to... Is the FAFSA figuring student contribution from assets, or income, or both? Would DD's student EFC be less is she earned $3000, but had spent it all by FAFSA filing time, or earned $2000 and still had a thousand left? Even with all my CC reading, I've still made a few FA mistakes, so I'm trying to do better next year!</p>
<p>'Nother question. D has a couple thousand in EE bonds which are not eligible for tax-free status because they were purchased by Grandma years ago. When we list those as her investment asset on the FAFSA and PROFILE, I listed the exact total amount. However, because we didn't declare the interest earnings each year, tax on the interest earned will be due in full when she cashes them. Could we have listed the amount of her bonds as the total value of the bonds MINUS the debt (tax) due on them? (The instructions say that you can reduce the value of the investments by debt...)</p>
<p>FAFSA figures the EFC using student income AND assets, so you get really zapped if there is money sitting as assets. A student on financial aid should spend as much of his money as possible. Mom and Dad can set up an account with the intention of giving to the student as graduation in the amounts the student spends, as any sitting assets are only assessed at 5.6% for the family but at 35% for the students. As for the EE bonds, no, you cannot subtract the debt from them. The market value of the bonds at any given time would take that into account. When the bonds become due, they are worth their face value. It is not interest earnings on these bonds, so much as unrealized gain and that is not realized and reported until they become due.</p>
<p>thanks jamimom!!!! :)</p>