I am a single parent who put several kids through college on financial aid and work. All my kids were Pell grant eligible. I am up to my last kid (so family size of 2) who has completed freshman year at an expensive private university that does not meet full need but was generous with him. They use only the FAFSA and his award was roughly half merit, half financial aid. I just started a new job and my income will go up drastically-- in the low 6-figure range. I realize all the financial aid may evaporate. Here’s my question: I have no retirement and no emergency savings and there are repairs that desperately need to be done. I started contributing to my 401K but am scared that I won’t be able to access that money if I need to for his college. Any advice? My protected asset allowance is under $20K and kiddo has about that much in a college savings plan in my name (so it does show up as an asset). Should I postpone retirement savings and put the money in the bank, figuring I’ll need it in a year?
Hello @2collegewego !!! Haven’t “seen” you for a long time!!!
:-h
Congrats on the new job…
Ok, so this year, you’ll make much less than your new future annual salary, right? So, next January when you report 2015 earnings on FAFSA, you’ll only have this new high income for 5 months.
Have you run the NPC with those projected numbers to see what will change?
How much of his aid is need-based grants?
I personally think you should contribute to your 401k. That money is going to count as income regardless.
Here is a thought…you sound like you have been living on far less than your current income. Any chance you could continue to love on that reduced amount and bank the rest? Remember, your assets are tapped at 5.6% of value for fafsa need based aid purposes…not 100%.
If your son doesn’t currently take the Direct Loan, he can do so for the upcoming year…and subsequent years.
How much of his aid is need based? What will your balance be?
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My protected asset allowance is under $20K and kiddo has about that much in a college savings plan in my name (so it does show up as an asset). Should I postpone retirement savings and put the money in the bank, figuring I'll need it in a year?
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I’m guessing that you should contribute to retirement, and use that $20k towards any shortfall for next year. The question is how big will that shortfall be considering that some aid is merit, and you won’t have the big salary for 12 months.
that said, a 2 person household (1 parent/1child) will get hit harder with the calculations.
Can you estimate what your “lesser” earnings will be for 2015 and ask the school? (lesser meaning not the full big new income)
Can you use a paper FAFSA to figure out what your new EFC will be for 2015 income?
In addition to contributing to retirement, will you be able to set aside more money for college?
By the way, the APA dropped considerably. I can’t find the 2016-2017 table but I’d be surprised if anyone has an APA that’s not under $20k.
So crazy that the APA has dropped. And it’s crazy that there isn’t a small protected asset amount for students…even if it’s just 2000.
back to topic…
Hi mom2collegekids!
Ok, some numbers: kiddo gets about $25K/year in scholarship, $25K in grant aid. I was earning about $60ish.
This year, I will probably hit $100K and maybe around $125K the following year. Because my family size is just two, I’m paying a lot into taxes so I’m not bringing home double. After taxes, insurance, etc, my take home without a 401K contribution is about $1K/week. I set the 401K contribution high and it reduces my take home to about $750/week. About $250 is matched. So I take home $500/ less every two weeks BUT contribute $1K every two weeks (about $250 is the tax difference and $250 is the matching funds).
When I go on the net price calculator, it estimates absolutely no grant aid at $100K so that means I could have to make up $25K/ year. Kiddo will take out whatever loans are necessary. Would I be better off not contributing to my 401K and banking that money? Or contributing and then taking out a home equity loan for the difference?
Your previous salary was $60K. You now make $100K so you have $40K to work with. You can figure out your 401K and match, then subtract taxes.
You earn $60,000 now. Can you love on $60,000 a year…or whatever your take home is from that?
When you bump up,to $100,000, you will earn $40,000 more a year. You will bring at least half of that home…or $20,000. Can that added take home pay be used for college costs?
As mom2 pointed out…for the first year…you will not have the full six figure amount…because your pay didn’t get raised until late July. So…half a year of increased wages for the 2016-2017 fafsa. For the 2017-2018 fafsa, your income will be the highest.
Did your kiddo take the Direct Loan for the upcoming school year? If not…take that. If he doesn’t need it, save it for the following year. Then he can also take the Direct Loan for the following year as well.
The difference in your take home pay, plus the direct loan, should,cover his reduced grants.
It’s only a couple of years. Many people have very lean years while,their kids are in college.
Congratulations on the job…and increased salary. In the long run, it’s a good thing.
No, always do the max 401k. You will be shocked at how quickly it adds up. If you are putting in $250 per week and it is matched at $250, that is a FREE $250 or $13000/yr. Also, it is likely the tax difference will make up about $100 of that, so instead of taking home $1000 with no contribution, you’ll take home $850. It’s particularly nice that you’ve never had this much money before so you are saving invisible-to-you money and your grocery bill and gas tank won’t notice any change.
The amount that is deducted pre tax will be added back in for the year on your FAFSA, but it won’t make a difference because if you don’t contribute you’ll make $100,000 and if you do contribute you’ll make $87,000 plus have to add back in $13000. In future years, you don’t have to report that $13000, but you would if you saved it in a bank account. If you truly need the money, you might be able to borrow from your
Your asset protection in 2016-17 is going to be practically zero. If you are single in the mid 50’s age group, I don’t think your protection was even $20k last year, more like $9000.
I think we need @dstark to weigh in here…
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After taxes, insurance, etc, my take home without a 401K contribution is about $1K/week. I set the 401K contribution high and it reduces my take home to about $750/week. About $250 is matched. So I take home $500/ less every two weeks BUT contribute $1K every two weeks (about $250 is the tax difference and $250 is the matching funds).
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I think you have to keep the 401k contributions, especially since you have no retirement.
If I remember correctly, you’re still quite young. Are you 50 yet? At what point with this new job can you do catchup with the 401k. Is the new job with a new company or the same company?
Erin’s Dad and Thumper, it doesn’t work out that way. Believe it or not, I don’t really have more take home after deductions other than the 401K: primarily because of taxes but also because of deductions. My family size is going from 3 to 2 and I have health/ dental/ vision/ disability/ life insurance for the first time in 15 years. All good stuff-- but it costs money. My additional income is basically all used up with taxes, insurances and 401K contribution. And I live in an expensive area. (Thumper, just to clarify, I should hit right around $100K this year.)
It looks to me like we will have to come up with a good $2K/ month but I can’t do that and contribute to the 401K. I would either have to not contribute to the 401K or take a home equity loan or some combination.
Kiddo can take a direct loan. What are the limits?
Well, he’s ok for his soph year, right? His aid was already figured based on 2014 info.
Does he have an sub loan offer for this year? If so, take it and bank it.
so as a junior, he’d get 7500 (mix of sub and unsub)
how much gap does he have this year?
Direct Loan.
Freshman $5500
Sophomore $6500
Junior $7500
Senior $7500
Well, thinking outside the box…does this child’s father owe any back child support? If so, can you collect any of that?
Is this child a rising junior or soph? I thought he started college in Fall 2013.
He could also try for a department grant or get a paid internship next summer.
How is the gap getting covered now?
Is there any way to decrease out-of-pocket costs if the grants disappear? cheaper housing? cheaper meal plan? renting text books?
Did he come in with AP credits and can graduate early?
Also…how much can your son earn/save over the summer?
Once we have it clarified whether this is the son who started college in Fall 2013, then we’ll know how many years he has left?
Ok, the loans will definitely help bridge the gap. Mom, I’m not 50 yet but closing in. The dad is not in the picture. As far as I know, he is not working; I’ve been told he’s disabled and supported by his current wife but we have no direct contact and I don’t actually know where he lives.
And Thumper, this is my 14th straight year of paying college for kids so we’ve had a lot of lean years. I’m glad for the increase and very thankful they’ve all gotten through. Just have to figure out the last stretch.
Mom, sent you a message.
Last year, he had about $25K in merit, $25K in grant and the rest came from the college savings account and me. He is a rising soph. Housing and out-of-pocket will not decrease.