<p>I'm new to this forum. My daughter is a junior. I was planning on converting my stocks (not tied to any retirement fund) to a low performing CD ($47000...$ from divorce settlement 8 years ago) to avoid capital gain for the base year. Last year, capital gains was only $845. From what I'm reading I would have to do this by Dec 31st (her base year being jan 1st 2013-dec 31st2014). Should I do it?? </p>
<p>Single mom with income just under 80k, but capital gains may put me over. Have worked so hard to get income up, now realizing it could hurt daughters chance to be eligible for any grants.</p>
<p>What kind of schools will she be applying to? </p>
<p>In the state of Calif, incomes under $80k qualify for Blue and Gold for UCs, but other states may not be that generous.</p>
<p>If you’re looking to qualify for a Pell grant, than you’re already earning way too much if your family size is 2-3 people with only 1 adult. </p>
<p>Most schools do NOT have much free money to give other than federal grants, and as mentioned above, your income is too high for those already. For a family of 2-3 people with one adult, your income would have to be a LOT lower to qualify for a Pell grant.</p>
<p>You should run the net price calculators at various schools. Warning: schools like Harvard could give you overly optimistic results since they give super aid.</p>
<p>Also, be aware that the schools that give the biggest grants are the ones who usually look at BOTH parents’ incomes…so your ex’s income (and any new spouse’s income) and assets will also get considered.</p>
<p>We are in California and my daughter will apply to either a Cal State or UC. I was surprised to hear about the Blue and Gold opportunity for UCs. Probably UCSanta Cruz or UC Riverside, but mostly looking at Cal States (Cal Poly, Pomona, Cal State San Bernardino, Cal State Channel Islands). </p>
<p>I think I saw that Cal Grant (family of three) could be qualified for under 76k. That is why I’m trying to work on reducing income. I’m at Cal State San Bernardino right now, so i think I can claim my student loans interest and tuition, so that should help reduce my taxable income. </p>
<p>Thats why I thought about getting rid of the yearly capital gains the stocks make and just put it in to CDs.</p>
<p>I assume you mean that you are getting dividends each year from the stocks. If you sell the stocks, will you realize capital gains from that (is the stock worth more than your basis when you acquired it)? Because I think that will count in your income whatever year you do that, and could really make a difference. That is potentially a bigger deal than yearly dividends.</p>
<p>Yes…I mean dividends…on my taxes it says capital gains. </p>
<p>Well…i originally invested $40k…and today it is almost up to 50k…this has been over 8 years with some ups and downs. </p>
<p>I was thinking of selling the stocks to have money available, to avoid the “fiscal cliff” increase on taxes on capital gains that is looming, and to avoid capital gains in the “base year” (which from what I understand starts. Jan 1st 2013)</p>
<p>Or, I guess…just leave it in the stocks and just hope I don’t need it for sometime.</p>
<p>If you plan to use the stocks to pay tuition (we do this at our house), you will need to sell them sometime. The difference between what you sell a share for now and what you paid for it is capital gains, and I believe is considered as income on the FAFSA or PROFILE. So, for example, if you sold them all next year, you could end up showing an extra $10,000 in income next year. Depending on the sale price, of course.</p>
<p>oh…i was thinking that the dividends that I have to report on my taxes every year was going to increase my income. </p>
<p>Defintely, don’t want to sell them after Jan1st 2013. </p>
<p>So, if I sell them by Dec 31st 2012 (this year) I could have the $$ avail. </p>
<p>I plopped the $$ in Vangaurd stocks…not knowing what the heck I was doing…and still feel so confused, but happy I made 10k.</p>
<p>I’m seriously thinkiing of selling the shares by Dec 31st…paying capital gains for this upcoming tax return because I made less this year. Thoughts? Thanks so much.</p>
<p>There’s no one right answer here because it depends on whether you’ll need the money to pay for college or if this can stay invested for the next 4 years. It also depends on whether you’ll be a student at the same time as your daughter because with 2 in college you’ll each have an EFC of approximately half of the total EFC if only one were in college.</p>
<p>Also at your marginal tax rate, you might not be hit by the (presumed) increase in the capital gains tax in 2013. </p>
<p>Your dividends are added to your AGI every year and are taxed at your marginal rate.</p>
<p>It’s your AGI that’s reported on FAFSA and the Cal Grant application, so that’s the bottom line you need to be looking at. Do you use the standard deduction or do you itemize? Your AGI could be lowered quite a bit if you itemize to include mortgage interest payments and/or real estate taxes.</p>
<p>What matters for FAFSA is your income in your base year, which you say is 2013. So moving some capital gains into 2012, which increases your 2012 adjusted gross income, would be preferable to taking those gains in your base year.</p>
<p>I itemize…so that is good news for Cal Grant</p>
<p>I have a lot of calculating to do</p>
<p>Wikapedia says that for my tax bracket (25%) the presumed increase in capital gains would increase from 15% to 31%.</p>
<p>Also, I thought parents didn’t count going to college RE: cutting EFC in half…ONLY other Siblings…if that is so maybe I’ll go one more year…i graduate this June 2013</p>
<p>Sorry, annoyingdad is correct, parents don’t count in the number of students in college for the child’s FAFSA, only on their own.</p>
<p>And it’s true that I misstated above about mortgage interest and real estate taxes reducing AGI. However there are other deductions that will reduce AGI such as IRA and HSA contributions that the OP should factor in when calculating her income.</p>
<p>If the dividends push you over the Blue &Gold limit, you need to see whether the interest you would collect on a set of CDs would be low enough to keep you inside the limit. If not, and your dividends are paying better than the interest would, leaving the money where it is might make more sense.</p>
<p>If you do sell the stock, CDs aren’t your only option. Putting some into a high interest money market or one of the higher interest e-bank savings accounts would keep it liquid for college expenses.</p>
<p>hmmm…50k x.05 percent (CD rate at my credit union) would earn $2527…the money market chking account offers 0.10 so my dividends may be more than the stocks. </p>
<p>I believe my educator expenses (work for school district), student loan deduction, tuition and fee deduction can reduce my AGI…does business loss reduce AGI? I had started this Google ADS business for extra $$, but it tanked this year.</p>
<p>Maybe I should just leave the $$ in stocks------confused. </p>
<p>The earnings in a CD or money market are likely to be more than the dividends from the stocks, so you won’t be reducing your income by moving them. The question is whether you will need to use that money to pay for college, or other expenses over the next 4 years. If you do, you will have to sell the stocks at that time, and may realize a Capital Gain at that time. But you also need to be aware of your basis. You say you paid $40,000 for the stocks several years ago - but what did you do with the dividends over the years? Did you reinvest them, or did they send you a check? If you reinvested them, your basis is your initial cost (the $40,000) plus all the reinvested dividends. If you had $800 of dividends each year over the course of 8 years, that’s another $6,400 added to your cost, and your $50,000 sale would only result in $3,600 in capital gains, not $10,000. If your reinvested dividends brings your basis up to the current value of the stocks, you have no gain, and the impact of a sale on your taxes would be minimal.</p>
<p>If the existing tax cuts are extended, and you don’t need to sell the stocks, you may be better off keeping the money there. You are currently paying 15% capital gains tax on the dividends, because they are treated the same as capital gains. If you move the money to a CD or money market account, it will be regular income, taxed at your higher marginal rate. Dividends will be taxed at that same marginal rate, even if we go over the “cliff.”</p>
<p>CTScoutmom…Thanks for the breakdown, didn’t really understand how the capital gains are figured…I have the dividends reinvested. Glad to hear would pay capital gains on 10k. </p>
<p>IntParent</p>
<p>Savings was the .05
Money market is 0.10
1 year CD 0.21
5Year CD 1.05</p>
<p>from my credit union…did I calculate wrong?</p>
<p>If the interest rate on your savings is 0.05%, then (50K)(0.0005)=$25 in interest payments per year. 0.05 implies 5%, but it looks like it’s actually .05%, so your multiplier is 0.0005 if that’s the case. If you sell the stock, it would lead to capital gains, which are included in your AGI. If sold this year (2012), the max tax rate on capital gains (from the sale of stock) is 15%. It’s honestly a wild guess what the tax rate might be after this year, but most folks would probably expect that rate to go up if it’s going to change. I personally doubt that they’ll make average income taxpayers pay anything more than their regular marginal rate (25% in your case), but that’s a wild guess.</p>
<p>Also, the educator expenses deduction expired at the end of last year (2011), so you’re out of luck for that one unless they re-up it sometime very soon.</p>
<p>As has been mentioned before, it sounds like the most important thing for you to figure out is if you’ll need that money for college expenses. If you’re sure you will, it would be prudent to at least sell the amount you’ll need to pay for expenses next year…unless the capital gains would put you over a cutoff for potential aid! Savings rates are pretty terrible, so chancing some future capital gains at a potentially higher rate might be worth the risk of leaving some of that money in the stock. It’s just personal choice and your risk tolerance, though.</p>
<p>And yes, business losses will reduce your AGI, but apparently it’s entirely possible for colleges to disallow that, especially with non-cash items such as depreciation.</p>
<p>Bummer about the educater expenses…we spend so much of our own $$</p>
<p>I will need some $$ for my daughter’s college expenses, so I will probably, so I’ll probably sell a portion of the stocks now just to be safe and to avoid doing that during the base year</p>
Depending on the sale price, of course.</p>