<p>I'm new here and bought the 'paying for college w/o going broke' book as recommended. I realized right away that I should start reading 'short term strategies' as my daughter is a junior and the income year that matters started in Jan. I'm retired and receive a pension and SS, including a supplemental SS for my daughter which will end next March when she turns 18. My wife has a small business (S corp) with herself as the only employee. Most of my assets are in Ira/410K savings plan, but I do have a MM acc't that's not sheltered. My wife thinks we can reduce her income and our assets if I reduce this MM acct by paying all her other expenses as well as our estimated taxes this year (I have to write that check real soon). Seems like a win/win. I haven't begun to look at college financial forms yet (FASA?). I suppose I should do that next. I guess I'm asking for a heads up about how much this will help our (EFC?). What limits matter. Our income would drop to about 89K this year with my MM acct (assets) going down by half. Next year my MM acc't would go down to zero. This year I will invest only from an IRA. Last year I invested from this MM taxable acc't. We've sent one daughter to an Ivy league college when we were both employed w/o much FA. What are our prospects for daughter #2? And will the SSI for my daughter figure in even though it ends when she's 18, 6 months b4 she starts college? Cheers all.</p>
<p>One piece of good news – your daughter’s payments from Social Security end when she’s 18 **unless she is a student. ** So, assuming she is a HS senior, they will continue until graduation.
[Social</a> Security Publications](<a href=“http://www.ssa.gov/pubs/10085.html#a0=2]Social”>http://www.ssa.gov/pubs/10085.html#a0=2)</p>
<p>As you probably know from the book (which is a great resource!) your wife’s small business and your IRA don’t count on FAFSA. Also, depending on the age of the older parent FAFSA also has an asset protection allowance. For a married couple in their late 40’s the amount is around $45K. Beyond that assets are charged at 5.6%. So if you have $100K in your money market account it would add $3,080 to your EFC. </p>
<p>There’s nothing wrong with trying to reduce your MM, but you should keep in mind that your household income will be the factor that drives the EFC calculation.</p>
<p>Social Security payments to your daughter are not counted for FAFSA (assuming she has no other income). I am in a similar situation to yours. My husband is disabled and I am the owner of a small S corp business. I just want to make one small clarification in regard to your comment about your daughter’s social security income. I believe you meant that she gets payments since she is the dependent of a SS beneficiary. You used the term “supplemental” which is what the Social Security Administration calls SSI (Supplemental Security Insurance). SSI is a needs tested payment that is only available to low income people. I presume from your other information that she gets the dependents benefit, not SSI. (Sorry to if this sounds snarky, but it could make a big difference in her Fin Aid prospects. There are different rules if you get certain needs tested benefits.)</p>
<p>Also, depending on your wife’s income, some of your SS payments will be taxed and will be included in your Adjusted Gross Income on your tax forms. Your AGI is entered onto FAFSA, so that portion will impact her financial aid. The untaxed portion of SS does not have to be included on FAFSA. </p>
<p>You and your daughter should be aware that schools that use the CSS Profile may treat your situation very differently. She should make her college list with this in mind.</p>
<p>Thank you M for that quick reply. And, of course you are correct about my daughter getting SS as the dependent of a retiree on SS. We can reduce my wife’s income (she pays herself less) by the amount I spend on her bills from my MM acc’t. That might reduce our income by 40k or so while depleting part of that asset which contributes less to EFC. Do I have that right?</p>
<p>OP,</p>
<p>I don’t think that by reducing your wife’s salary, you will be reducing your overall income. S-corp profits are generally non-taxable (at corporation level) because they flow into your personal tax return. </p>
<p>By paying herself less, the profits will flow into your personal tax return and will still be assessed income taxes. The only difference will be payroll taxes. Your wife should keep in mind that if a corporation is profitable, drastically reducing officer wages maybe frowned upon by IRS (because of payroll taxes).</p>
<p>In short the only way for your wife to reduce income for financial aid purposes is for corporation to start bringing in less money.</p>
<p>I’m not sure that will work since your wife’s company is an S Corp.
With S Corps any profit or loss that the company has goes right on to your personal income tax form. The company issues its shareholders a K-1 form listing their share of the profit or loss and it is included on the Schedule E (if I recall correctly). Income from Schedule E is included in your Adjusted Gross Income line on your 1040.</p>
<p>So if she reduces her own pay but that increases the company’s profit it will all be the same. Personally I take most of my money out as pay to keep our profit down. That way we have enough tax withheld at the end of the year. One year we took out too little pay and had more profit and I ended up owing a lot of tax.</p>
<p>Now, on the other hand, if she takes out less pay and then uses the money to invest in the company your idea might make sense, since it will reduce the company’s profit. You may be able to purchase items that the company uses such as vehicles.</p>
<p>Your accountant would be a good person to talk to. I’m not a tax professional, just have had experience with S Corps.</p>
<p>EDIT: X posted with Lerkin</p>
<p>megmno,</p>
<p>your idea of investing into company will work for FAFSA only schools. From what I understand in general profile schools will add back capital investment to income and count items purchased as additional assets. I have also seen some business owners complaining that depreciation was added back to the income. Since OP wants to send his daughter to Ivy league school, this trick will not work.</p>
<p>Lerkin,
Thanks, I didn’t know that. S1 goes to RPI which only uses Profile for incoming freshmen. Their determination of need was pretty much the same as our FAFSA for the first year, but of course Profile schools all have their own policies.</p>
<p>I’ll definitely keep it in mind when D is ready to apply for aid.</p>
<p>Until you know what kind of school will likely accept your D, you may be tying up money that you’re going to need.</p>
<p>I know that your older D went to an ivy, but ivies and other elites have become much harder to get into, so even if this D has similar or better stats, she may not get accepted to a top school that meets need. Most schools do not meet need.</p>
<p>Your D is a junior, what are her stats? If she hasn’t taken the SAT or ACT yet, how did she do on the PSAT?</p>
<p>My first daughter had better stats. My younger one is in the A- category. She’s doing practice sat’s but I don’t know. She won’t go to an Ivy, but one of the CTCPL liberal arts schools that charge about the same or a bit less. If she decides to go to a state school that would be fine.</p>
<p>Well, since it sounds like she won’t be attending a school that “meets need”, if you tie up your money, how will you cover the gaps?</p>
<p>How did she do on the PSAT?</p>
<p>From what my wife tells me, if she reduces the income she takes from her Co., that will lower our AGI. Isn’t that one way to increase financial aid?</p>
<p>Reducing AGI can increase eligibility for need-based financial aid. HOWEVER, (and this is a really, really big HOWEVER) there are very few institutions that guarantee that they will meet 100% of student need. Fewer still that guarantee to meet it without loans. All of them are extremely difficult to get into. To the best of my knowledge, all of these institutions will require the CSS Profile which means that they can take into account any aspect of your finances - including retirement accounts if they so choose.</p>
<p>If your daughter doesn’t get into any of these places, and all of your money has been stashed away into retirement vehicles, how are you going to help her pay for her education? Are you even going to be in a position to do that?</p>
<p>Here is the link to the FAFSA formula for this year. Run your numbers through that with various scenarios and see what the results are. <a href=“http://ifap.ed.gov/efcformulaguide/attachments/010512EFCFormulaGuide1213.pdf[/url]”>http://ifap.ed.gov/efcformulaguide/attachments/010512EFCFormulaGuide1213.pdf</a> Run your numbers through the Net Price Calculators (NPC) on the websites of the colleges and universities on the current short-list, and see what those results are with different scenarios. Then talk the numbers over with your wife and daughter. Your daughter needs to know now if there will be serious limits to her options based on your family’s financial situation.</p>
<p>From what my wife tells me, if she reduces the income she takes from her Co., that will lower our AGI. Isn’t that one way to increase financial aid?</p>
<p>Not if your D doesn’t get into a top school that “meets need”. Most schools do not meet need.</p>
<p>If your EFC ends up beyond Pell (which it likely will), you may get no free money at all.</p>
<p>For example…</p>
<p>COA = $40,000 (an OOS public or a lesser-expensive private)</p>
<p>EFC = $9,000 </p>
<p>Need = $31,000 (that’s a lot of need)</p>
<p>Since that EFC is well beyond Pell, you might ONLY get a $5500 loan…and that’s it.</p>
<p>you seem to think that America’s colleges look at EFC and then charge a sliding scale. They don’t. They don’t have the money. They expect PARENTS to pay. There are a smallish number of schools that are “wealthy” and can afford to give away lots of money. Most schools have very little money to give…very, very little. </p>
<p>Since you’ve indicated that this D doesn’t have elite stats, she’s likely going to get accepted to mid-tier privates, instate flagship, and maybe a few OOS publics. Those schools will gap you big time.</p>
<p>“If your daughter doesn’t get into any of these places, and all of your money has been stashed away into retirement vehicles, how are you going to help her pay for her education? Are you even going to be in a position to do that?”</p>
<ol>
<li>Is bank robbery still against the law?</li>
<li>Plan B, was gonna ask you for a loan</li>
<li>Plan C, at my age my retirement funds are available w/o penalty. After they’re gone, I can move into my car, or live at your place whilst I pay you back for the loan. I’m not a bad cook and I do windows…</li>
</ol>
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<p>I don’t know what to think as I’ve just begun this process. Daughter #1 went to Smith (43-45K with a 3K stipend and some work/study earnings). But that was before I was retired. </p>
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<p>She’s an A- student at a private school with a decent rep. I stated she was interested in CTCPL’s (colleges that change peoples lives), usually small liberal arts colleges like Allegheny (48K), Denison, Oberlin, etc.</p>
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<p>I am sorry, but this is not correct.</p>
<p>The wages she pays herself go on line 7 of 1040. </p>
<p>All the expenses, including the wages are subtracted from her company’s gross income. Whatever is left (corporate profits) flows through on line 17 of 1040. </p>
<p>So, if she pays herself less, line 7 decreases, but line 17 increases.</p>
<p>If her school often sends students to the CTCPLs, then her guidance counselor should be able to give her a solid estimate of her chances of admission at those places. Do have her find out what her counselor thinks her chances are for merit-based aid based on her school’s history as well. Then take a long hard look at the information at each institution’s website about their individual financial aid policies. You can even call and ask for more particulars.</p>
<p>She’s an A- student at a private school with a decent rep. I stated she was interested in CTCPL’s (colleges that change peoples lives), usually small liberal arts colleges like Allegheny (48K), Denison, Oberlin, etc.</p>
<p>Some of those schools don’t meet need. Again, so your D could be given maybe $25k in various aid (merit, grants, loans, work-study) and you’d have to pay the other $25k…regardless of what your EFC is.</p>
<p>When the Child #1 has elite stats and goes to an elite school that meets need, it can be misleading for the family when Child #2 has very good stats, but not the ones for elite schools or doesn’t have interest in those schools. </p>
<p>I can’t imagine why any self-employed person would think that if the just “paid myself less” that they’d qualify for more aid. That’s almost like having money put into savings before getting your paycheck.</p>
<p>Anyway…For non-elite schools you almost have to assume that they don’t meet need unless you have very little need which can be filled with a student loan and work-study.</p>
<p>Think about…if schools just “met need” for all the low income students out there, why wouldn’t every poor person go to college? Why wouldn’t every kid go away to school…especially pricey schools. Most kids commute for a reason…most schools don’t give great aid.</p>
<p>OP, Lerkin is right. If your wife’s company makes a profit, and she decreased the amount she pays herself, that is just more profit for the company that flows to your personal tax returns. In addition, since she wants you to pay for company expenses out of a personal money market, that is additional profit for the company. Remember, corporate returns are asked for as well as personal returns. In addition, we were asked for 2 years worth of tax returns just to prevent such creative accounting.</p>
<p>Line 7 is W-2. That won’t change. The amt on line 17 is what she takes outside the Co. If she leaves it inside the Co. it doesn’t show up there. We are talking about relatively small amt’s here. Perhaps there is a limit to this, but not what we are talking about.</p>
<p>Findingzero…if it’s such a “small amount” it’s not going to make a difference in the financial aid calculations. The other thing you need to understand about self employed business owners…often expenses that are used as deductions are added back in as income for those folks. Things that the IRS allows…the finaid folks do NOT allow. You might be churning your wheels over NOTHING.</p>
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<p>Yes…but the money WILL show up on your wife’s corporate return…or at least it should show up. It will remain within the company…and your corporate return will also be a required submission to the colleges if you own a business.</p>
<p>I would suggest that you go to a college you think your kid might like and run the net price calculator for THAT school using both scenerios. Keep in mind that those business expenses typically do not show up on the NPC. This will only give you a guestimate of your family contribution…a guess. But it’s something to see.</p>
<p>Also, keep in mind (as mentioned upstream) that the VAST majority of colleges do NOT meet full need anyway. Your family contribution would be a minimum of what you would be paying for college PER YEAR. Oh…and yes…need based aid is calculated per year…so your financial gymnastics would have to be done for more than several years.</p>