<p>My family's EFC is roughly 40k. My parents earn roughly 40k a year, but the problem is we just sold our home so we have almost 550k in the bank. I have a feelign that this money is meant to pay for my parents retirement since I think they plan on moving to a smaller home once I leave. </p>
<p>What should I do? I don't want to burden them but I also want to avoid working my way through college.</p>
<p>You need to have a talk with your parents about what they will/will not contribute to your education. Do not take out over $20,000 in loans to attend undergraduate school (Total for all 4 years!!!). Make a choice that is affordable. You can expect to contribute $2500 a year from summer earnings, and earn enough (8-10 hours per week during semester) to pay for your books and personal expenses.</p>
<p>Your parents picked the absolute worst time to convert their home equity into fat, juicy cash in the bank. Do they have to file a 1040? Maybe there is a way to qualify for simplified needs analysis so assets get ignored?</p>
<p>Yes if their income is less than $40,000 tell them to see if they are eligible to file a 1040a or 1040ez - then they should qualify for the simplified needs test.</p>
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<blockquote> <p>40k a year, but the problem is we just sold our home so we have almost 550k in the bank.>></p> </blockquote>
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<p>Well...some folks would call this "good" timing. Your parents have that $40,000 for your education this year. It would probably be well advised for them to purchase their new home during the 2007 year so that this money isn't sitting in the bank ...and they should also speak to a financial advisor about how to put that money into retirement funds which are also not considered as assets in the finaid calculations. There would still be $510,000 to invest (plus interest) and no debt or expense for college this year!!</p>
<p>Oops! Really bad timing.</p>
<p>Agree-- simplified needs test if possible. If not, reinvest in another home asap.</p>
<p>Or, as Thumper suggested, just start paying full freight out of pocket.</p>
<p>Yes, it happens if you don't plan it right, that you get a big payout sitting there as an asset during those critical years. Happened to friends of ours who "retired" and got a rather large payout that had to go towards starting his own business. They were, in fact, in very precarious financial shape for two or three years despite that large amount of cash/income that showed up that one year.</p>
<p>So, here are some choices, given the situatation. Try the simplified needs test which I don't think is going to fly, but give it a try. If you sold your house and came up with all of that money, there had to be a gain from the sales this year which would bump your income even higher, unless they sold the house during a previous year and the money has been sitting since then.<br>
If you still come up way up there, you can either pay this year or borrow, and arrange your finances so you come up with a more relevant EFC for next year. You are taking the risk that your school may not give great packages even at a zero or very low EFC in doing this. So you pay, amortize over those 4 years, if you think this will work and you can get those numbers down, and your school with give out the money. Otherwise, you may want to sit out this year and work (Americorp, is a good choice), and go through the process next year, with all of your ducks in a row. The money should be tucked away in retirement accounts, a new home, whereever it won't cause fin aid issues. You can also take courses at local comm colleges or state schools while working which can knock off some time from your college,saving some money that way. Since you have been through this process this year, you will have the added wisdom and be able to make adjustments to your profile in this time.</p>
<p>The parents need to put that money into a Roth IRA pronto and resubmit the FAFSA!</p>
<p>I think Roth has a max annual contribution of $4K per person-- a bit higher with catch-up. No?</p>
<p>Doesn't FAFSA calculate equity into the final numbers though? My parents make quite a bit, but while would normally would qualify for at least a little something from Ivy Leagues, I'm thinking the $300k in our home's equity (price doubled in past 4 years) won't go under FAFSA undetected.</p>
<p>Roth IRA max is $5k per person if you are over 50.</p>
<p>FAFSA does NOT use home equity. Profile does.</p>
<p>You state that your parent?s income is 40K. FAFSA looks at four factors: parent(s) income, student income, parent(s) assets, student assets, subtracts some standardized deductions and then pumps out an EFC (estimated family contribution). If a parent?s AGI (adjusted gross income) as reported on a federal tax return is under 50K and the parent(s) file a short form (1040EZ, 1040A), then two of the factors (parent(s) assets, student assets) will be excluded when a family?s EFC is determined by FAFSA. This is called the simplified needs test. This test applies to federal aid programs like Pell grants, Stafford loans, etc. If the school uses the Profile, the 550K is on the table.</p>
<p>Your parents need competent tax advice to determine how much, if any, of the money they realized on the sale of the home will show up on a tax return. Depending on your parent?s situation and whether they meet certain requirements (e.g., lived in home for 2 of the last 5 years), some, if not all of the money may not have to be reported on a tax return and included in their AGI. If, however, all or any part of the gain from the sale bumps their AGI over 50K, then they may want to consider Sblake?s advice about reinvesting in another house before they file FAFSA. Good luck.</p>
<p>cptof thehouse- just curious as to why you think the simplified needs test won't fly?</p>
<p>The family has over a half million in assets. They sold a house. If they just sold the house, they have to report that gain and it would not be on the short form. If the money has been around for more than a year, then unless it is sitting under the mattress, I presume it is earning interest. Depending on the amounts, a short form may not be permitted. Without knowing all of the details, I would not be 100% sure that the simplified needs test would fly. I am curious, however, if there are limits on the assets for the simplified needs. If some one does have an income below threshholds, and assets under their mattress of millions of dollars, does FAFSA still ignore this?</p>
<p>My parents earn roughly 40k a year, but the problem is we just sold our home so we have almost 550k in the bank.</p>
<p>so- where are you living and how are you paying for it?</p>
<p>Thats pretty good if they only make 40K but had $550,000 in equity</p>
<p>In fact I am distracted that they make so little, yet were apparently able to pay off their mortgage well before retirement age.
We make a bit more, yet we have had to borrow from our mortgage, to make repairs on our house, fix cars and pay medical bills</p>
<p>According to my research- you may not have to claim as capital gains
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I sold my primary residence this year. What form do I need to file?</p>
<p>A: If you meet the ownership and use tests, you will generally only need to report the sale of your home if your gain is more than $250,000 ($500,000 if married filing a joint return). This means that during the five-year period ending on the date of the sale, you must have:
Owned the home for at least two years (the ownership test), and
Lived in the home as your main home for at least two years (the use test)</p>
<p>If you owned and lived in the property as your main home for less than 2 years, you may still be able to claim an exclusion in some cases. The maximum amount you can exclude will be reduced. If you’re required to report a gain, you’ll use Form 1040, SCHEDULE D, Capital Gains and Losses.</p>
<p>If I sell my home and use the money I receive to pay off the mortgage, do I have to pay taxes on that money?</p>
<p>A: It is not the money you receive for the sale of your home, but the amount of gain on the sale over your cost, or basis, that determines whether you will have to include any proceeds from the sale as taxable income on your return. You may be able to exclude any gain from income up to a limit of $250,000 ($500,000 on a joint return in most cases). If you can exclude all of the gain, you do not need to report the sale on your tax return.
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<p>However- if you itemize deductions at all- you dont qualify for simplified needs test</p>
<p>When you sell your house, don't you have to report that somewhere on the 1040? I haven't paid attention to that since it has been a while, but I seem to remember that you have to report the sale and show that you do not have capital gains. </p>
<p>There is much we don't know about a situation when it is posted. It can be simpler or more complicated than the posts show. I am not saying that the simplified test is not possible; just saying the OP had better check it out first, because there are circumstances where it would not hold for him. </p>
<p>It is entirely possible for someone to have a home of that value with little income. People inherit homes which may be in areas that have appreciated drastically. In NYC, I know many who live in condos, apts, that they could not afford today. Some inherited the places, some moved into them when they were dives that have now been rehabilitated to luxery digs. MY brother's good friend is in that situation. His income is barely enough to make it, but that apartment of his is worth more than a half million. It was a dump when he moved into it many years ago, but the building has been totally revamped. He lived through the constructions, renovations, lawsuits and negotiations when the owners tried to throw him out. So in a sense he earned it. When his kids go to college, he is going to have that as an asset, but his income as an administrator in a small catholic school that serves predominantly disadvantaged children is small, and they live very modestly.</p>