Retirement Shelter and disabilities - older single parent

Paying for College
1

<p>Where to begin?</p>

<p>I have about 200K in investment funds and part interest in family farmland (worth 100K - 150K tops, and far from liquid), all given to me by my mother. She is well aware that owing to a rotten divorce and serious health problems, I have no retirement income.</p>

<p>I also own a middle-low income house badly in need of repairs. </p>

<p>I do not work although I hope (the hope is wearing thin, but it is still there) to eventually be able to tap into some former creative talents and earn some money from home - writing and/or possibly doing graphic art work.</p>

<p>I just turned sixty (true, but ouch!). These resouces are my only significant retirement income. Alas, since they are not earned, they are not sheltered in a retirement account. The only other source for my "old age" (tomorrow?) will eventually be 20% of my X's retirement account as a professor at a State U. Not quite sure if this will be lump sum or annuity once he is eligible to retire (he's five years my Junior). And of course - haha - social security. Again - someday, if the fund and I myself, last that long. </p>

<p>Am I not entitled on account of age and disability, to have a significant amount - if not all - of these assets (however acquired), sheltered from inclusion in my EFC for my son's college expenses? My living expenses are met by child support and an alimony amount intended at the time of our divorce, to cover my ever growing medical expenses - including health insurance. My mother also generously supplements, this sum as well, though her ability to continue doing so is naturally limited. </p>

<p>Disabilities...I have a spinal mobility problem steadily worsening with age, which interferes not only with remunerative work but even with self care. It is one of the reasons the house is in disrepair. I also suffer from a depressive disorder which is "treatment resistent" and this is of course, equally disabling. I spent much of my adult life overseas, and thus have not accumulated enough quarters to qualify for SSI. </p>

<p>I hope my talented, hardworking son can have a fair shake in attending a high quality university - and without completely mortgaging his future. He has had his share of hard knocks in many practical and emotional ways, which have taken quite a toll. Yes, I'm his mom, but as much as I can be objective, I believe he especially deserves to have the best possible start in life (This is not to say I have not had my socks knocked off reading about many of you!). </p>

<p>True, he can use any university as a launching pad - but let's just say that he has gotten the shick end of the stit (so to speak) for too long already. As far as attending the State U where his father gets a substantial faculty discount - well, in the first place, he has already kind of run through their limited faculty in his areas of special talents/interests. Besides, he really wants and needs to leave the area and all the sad stresses he associates with life here, especially his family life. He is seen as Mr. "Has it all" by many in his large high school, but...if they only knew. :-(</p>

<p>His "stats" are superb - probably Harvard material, depending (to make it a certainty) on the outcome of two independent research projects he has been involved in for years. I mention Harvard since I know that treasuring their yield rate - plus being unusually kind to admissions - they are unofficially the most flexible and generous Ivie around (haven't seen this mentioned on your site, though it may be somewere). No one noticed they have the highest % students receiving aid? Their student body is NOT the poorest!</p>

<p>At any rate, I know that without sheltering most of my funds - darned minimal considering my "special needs" and age - I will be expected to pay far more than I can afford to help him. His father is not willing to contribute anything (@$%?*(@) although he may be prevailed upon to contribute at a bare minimum, the amount he presently pays in child support.</p>

<p>I know this is unofficially the minimum that he would be assessed anywhere (although the parental EFC is computed as a whole). </p>

<p>Anyone know more about sheltered retirement funds and whether there are asset classes that are not sheltered by either FAFSA, the Profile or otherwise? (I certainly don't see why not, if that's all a parent has!). Google has not helped answer this query.</p>

<p>I apologize for my lengthy inquiry with such great detail. Our circumstances are so unique, I feared answers would not relate to our actual situation if I were not fairly specific. I realize that the uniqueness means, however, that few can identify. That means any help would be especially appreciated, as I know it will probably apply to few others.</p>

2

<p>retirement accounts aren't tapped although the money that you put into the account for that year is considered available for tuition.</p>

<p><a href="http://www.finaid.org/fafsa/maximize.phtml%5B/url%5D"&gt;http://www.finaid.org/fafsa/maximize.phtml&lt;/a&gt;&lt;/p>

3

<p>Your situation is not that unique. Here it is restated:</p>

<p>You are 60 years old. You have about $250,000 in investments/land. You have a paid-for house. You are unemployed due to disability and live off alimony and child support. You have no expectation of social security or pension. You want to know how to keep EFC from biting into those investments/land.</p>

<p>First, the bite won't be that much, only 5% of the balance after the $50,000 asset protection allowance is deducted. So $10,000 per year. (5% of ($250K - 50K)).</p>

<p>One way to shelter the assets is to simply replace the EFC bite with income. I saw an ad in the paper this morning for 5% 15-month CDs. Get some of those for your investements and your principal won't be touched.</p>

<p>The next way would be to spend the investment funds in repairing your house or moving to a more expensive house. Then the funds are in your home equity and sheltered.</p>

<p>Or you might rethink the plan of sending your boy to college right after high school. He could work for a while first to earn his college money, getting some of the course work out of the way at community college. Or do a tour in the military.</p>

4

<p>Thank you both for writing!</p>

<p>A few corrections.</p>

<p>Total assets (cash, investment and land) are about $350 plus home whose estimated value with repairs is $150K and without, $100K (if it were even salable as is, which I doubt). The farmland is co-owned with older son, and would be hard to liquidate at true market price, even if he agreed. </p>

<p>Yes, I expect Soc Security (1/2 of X's expectation owing to 10 yr+ marriage) but X will not retire until ca 2019. There’s also some unknown amount coming from his own employment pension (lump maybe 50K or in annuity form, calculated who knows how?) .</p>

<p>I do plan to use assets to repair the house. </p>

<p>What I am very unclear about, is:</p>

<p>1) whether or not the father's assets/income MUST be computed per se for private university aid calculation or whether the EFC is more flexible than the straight PROFILE suggests, owing to his unwillingness to contribute. (In my state, kids suing fathers for university support has not succeeded; thus this is now case law here). </p>

<p>2) whether or not owing to my lack of specifically designated retirement funds, my assets (which are really retirement savings) would be treated differently. I had hoped the answer would be yes on this account, plus my age and disability. </p>

<p>Don't these two latter factors matter at all?</p>

<p>dt123: I don't understand your suggestion that I purchase 15 mo CDs. Why should these not be computed as assets just the same as anything else (cash, stocks or bonds)? The interest would be counted as income, sure, but they are still assets. I might even have to pay a penalty to redeem them early for school expenses, if they are assessed and the money is needed. </p>

<p>BTW things are further complicated in that 125K of the assets are from a trust fund which was payable to me on my last birthday, three days ago! Not sure about tax implications of this (for instance, do I pay capital gains over the original cost basis? Must check this out with accountant and Trust co. Too bad it was this year all in all). </p>

<p>50K toto for college expenses is quite a lot, you know - especially for a single disabled person of 60. It’s the same for me as having an already inadequate retirement account depleted by abt. 20%. I don’t know how I’m going to manage anyhow, especially as child support will be discontinued in a year. </p>

<p>Furthermore, selling and changing residences is expensive. Counting RE agent, sales tax, moving, legal fees, and so on. I come up with a good 20% minimum at either end. And that’s not even figuring that I need to pay for all physical help involved, owing to my disabilities. Not quite as simple or economical to “trade up” as it may sound. </p>

<p>I think a problem I’m encountering here is that the FAFSA rules are much more flexible in many regards than the PROFILE (private schools). For example, the Profile counts non-custodial income and also home equity, though there is some sheltering – variable by school, I believe.</p>

5

<p>PS GREAT link, EmeraldKity4! I can see why the FAFSA people hesitated to put it together, though it's very much what their reps say in person at school presentations. Man, it does seem some categories of relatively advantaged people have a lot of perks in getting financial aid! The system works very much against the self employed, for instance. </p>

<p>I really need to look into the possibility of qualifying to file a 1040A. It appears that would mean ALL assets are sheltered as long as AGI income is under 50K (God knows mine is!)</p>

<p>However, owing to length I guess, you missed the fact that I actually have no retirement account as such. That's my main question concerning the treatment of other assets which ARE actually my only retirement savings.</p>

6

<p>You will probably see various advisors. My suggestion is you could see multiple advisors. See as many as you can until you get a contrarian answer. It is only then can you understand which is the correct direction. Spend some money to discover opinions. Some will do it for small $, some big $, some for free. Try them all.</p>

<p>Somewhere down this path, annuities will be offered. Nothing wrong with annuities, but they are complicated to the average person. NEVER, ever annuitize an annuity. If you do get an annuity, get different ones, some are bettter than others, some are worse than others.
gl</p>

7

<p>I don't like shooting at a moving target, but I'll take one more shot.</p>

<p>Now it appears you have a net worth approaching half a million dollars including a paid-for house, and the expectation of half your ex's social security plus your own small pension.</p>

<p>You also have added that your AGI is less than $50,000, so if you could maneuver things around so that you are eligible to file a 1040A then your assets are out of the equation altogether.</p>

<p>Otherwise, your investments will get a 5% bite annually. My only point about the 5% CDs is to illustrate that the EFC bite is so minor that it can easily be replaced just with income off the investment principal. </p>

<p>Sorry, but the way the rules are only assets in "qualified" retirement plans are exempt from FAFSA. "Qualified" means a plan set up under federal law exempt from income tax until retirement, like an IRA, 401k, pension, etc. It is a handy litmus test to determine if funds are included in FAFSA. Even though your assets are what you are planning to retire on, they are not exempt from the EFC bite for the reason they are not in a qualified plan.</p>

8

<p>dt123 is right about filing a short form (1040A or 1040EZ), if your AGI as listed on a short federal tax form is under 50K, then all assets would be excluded when it comes to schools that only use federal methodology (FAFSA). I think the problem may be the alimony. I think if someone receives alimony, they have to file a long form (1040). Does anyone know about this?</p>

9

<p>yep- can't file short form if you recieve alimony

[quote]
4.5 Interest/Dividends/Other Types of Income: Alimony, Child Support, Court Awards, Damages
Are alimony payments considered taxable income?</p>

<p>Alimony, separate maintenance, and similar payments from your spouse or former spouse are taxable to you in the year received. The amount is reported on Form 1040 (PDF). You cannot use Form 1040A (PDF) or Form 1040EZ (PDF). Refer to Tax Topic 406, Alimony Received, or Publication 504, Divorced or Separated Individuals.</p>

<p>To help determine if these payments are considered alimony, please read the following:</p>

<p>The following rules apply to payments under divorce or separation instruments executed after 1984. They also apply to instruments that were modified after 1984 to:</p>

<p>(1) Specify that these rules will apply or</p>

<p>(2) Change the amount or period of payment or adds or delete any contingency or condition.</p>

<p>For the rules for alimony payments under pre-1985 instruments, please see Publication 504, Divorced or Separated Individuals.</p>

<p>A payment to or for a spouse or former spouse under a divorce or separation instrument is alimony, if the spouses do not file a joint return with each other, if the following conditions are met:</p>

<p>(1) The payment must be made by cash, check, money order, etc.</p>

<p>(2) The instrument does not designate the payments as "not alimony."</p>

<p>(3) The spouses are not members of the same household at the time the payments are made. Exception: If you are not legally separated under a decree of divorce or separate maintenance, a payment under a written separation agreement, support decree or court order may qualify as alimony even if you are of the same household at the time of payment.</p>

<p>(4) There is no liability for payments after the death of the recipient spouse.</p>

<p>(5) The payment is not treated as child support.</p>

<p>For an explanation of these requirements please see, Publication 504, Divorced or Separated Individuals.

[/quote]
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