pending retirement and no income - FAFSA impact

Paying for College
1

<p>I retired in April because I hated my job and H will be downsized in the fall with a good severance package. We are in our early-50s and had always planned to retire by 55, so our financial house is in order. </p>

<p>Our youngest will graduate from HS in 2015. I know nothing about the financial aid process, but want to know will it make any sense to file a FAFSA that will show no current income but high assets. We have much of net worth in investments that do not generate significant cash income. (paying for college is not a concern, but I have a friend in a similar situation that claimed she filed a FAFSA and received financial aid for her middle child).</p>

2

<p>Yes, your FAFSA would not show income (from work) if you are not working and your H is not working. My H doesn’t work and took early retirement, but he manages our properties so on our FAFSA it is my income from my work, the small amount of income from the apartments and for assets it shows the value of our investment properties and investments and FAFSA shows the amount I pay into a 401K. FAFSA will not reflect what is already in your 401K. Everyone’s situation is different so “aid” will vary family to family, but you could estimate your situation with any of the financial aid calculators and give a rough idea of what might happen. You can “play” with the numbers. It is also possible your friend received merit scholarship money that was not tied to financial need, but was reflected on the financial aid letter that was received in the spring. Two of my three kids receive that type of merit scholarship so our letters show the federal direct loans (that everyone can take out) and the small amount of merit scholarship money each receives. My third son is not receiving any merit scholarship money and his financial aid letter shows only the federal direct loans that he can take out.</p>

3

<p>For FAFSA, if the parent(s) can file a 1040A or 1040EZ and AGI is less than $50,000 then assets are not counted. It’s called the simplified means test.</p>

4

<p>That is true and I forgot about that, but it is dependent on being abe to file the EZ or 1040A. Taxable income and taxable interest come into play.</p>

<p>here’s the criteria for filing a 1040A or 1040Z. I forgot about this because we file a Schedule C, which kicks it automatically to the 1040.</p>

<p>[Tax</a> Topics - Topic 352 Which Form ? 1040, 1040A or 1040EZ?](<a href=“http://www.irs.gov/taxtopics/tc352.html]Tax”>http://www.irs.gov/taxtopics/tc352.html)</p>

5

<p>OP, are you only considering schools that only use the FAFSA forms for their financial aid process? This is the vast majority of schools … however most of the most selective schools and schools that provide the best financial aid use the Profile (or a similar form) that does look at a families financial situation much closer.</p>

6

<p>OP…NO Income? Or no EARNED income? How will you pay your day to day bills if you have no income of some type?</p>

<p>Presumably the OP and husband have some investment income they will be living off of. I’m not a tax expert, but I thought if your interest/dividend income or unearned income was above a certain amount, you had to file a regular 1040.</p>

<p>Also, if the parents plan to itemize they will need to do a 1040.</p>

<p>And if their AGI is above $50,000 regardless of how the money is “earned”, the simplified needs test will not apply.</p>

7

<p>The simplified needs test is for FAFSA only. If your youngest is considering FAFSA only colleges, it might be worth while to fill out the FAFSA just to see.</p>

<p>The simplified needs test has many different conditions, the biggest one being your AGI must be less than $50k. It is possible to qualify for the simplified needs test with various conditions even if you use 1040.</p>

<p>One example, a dependent may qualify if they or their parents received government assistance, such as food stamps.</p>

<p>Another example, your husband might qualify as a dislocated worker.
[Are</a> you or your spouse a dislocated worker?](<a href=“http://www.fafsa.ed.gov/fotw1314/help/fotw91h.htm]Are”>http://www.fafsa.ed.gov/fotw1314/help/fotw91h.htm)</p>

<p>If you pass the test, as others pointed out, there is no need to provide asset info. Otherwise, roughly 5% of your asset (minus your primary home, retirenment account, age exemption) is considered for your EFC.</p>

8

<p>

^ This.</p>

<p>If your income will be under $50K, arrange your finances so that you can file a 1040A. The rules are here:</p>

<p>[1040A</a> (2012)](<a href=“http://www.irs.gov/instructions/i1040a/ar01.html#d0e1802]1040A”>http://www.irs.gov/instructions/i1040a/ar01.html#d0e1802)</p>

<p>This will take your assets off the table for FAFSA.</p>

9

<p>Here is the link to the 2012-2013 EFC Formula Guide
<a href=“http://ifap.ed.gov/efcformulaguide/attachments/082511EFCFormulaGuide1213.pdf[/url]”>http://ifap.ed.gov/efcformulaguide/attachments/082511EFCFormulaGuide1213.pdf&lt;/a&gt;&lt;/p&gt;

<p>Below is a direct quote from page 4, for (1), if your husband can qualify as a dislocated worker, it doesn’t matter what tax form you use. Since he is getting a severance package, it is likely that he can qualify as a dislocated worker. You still need to meet the AGI requirement on (2).

</p>

10

<p>When combined property taxes of a primary residence and summer home are $33,000, the colleges may wonder what you are living on if income appears to be less than $50,000.</p>

<p>Since you need to file schedule C, it doesnt sound like the simplified need test would apply.
Schools will be using electronic updates from the IRS to verify info.</p>

<p>Isnt a schedule C for self employment?</p>