For reference re: a non-spouse inherited IRA http://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/inherited_ira/withdrawal_rules
@blossom, actually, my mother has had the foresight to systematically convert most (if not all by now) of her IRA’s to Roth IRA’s over the last few years. She decided it was worth doing while she could afford to. So, the tax burden on us, as beneficiaries, will be minimal. House is a pretty big asset on its own.
I took a distribution of an inherited Roth IRA (older than 5 years) in 2015 and it went on my 1040 as an IRA distribution (line 15a) even if untaxed (i.e. line 15b was “0”). I did have to report it on the CSS Profile as it specifically asked to include untaxed amounts from 1040 line 15a, along with pre-tax 401K contributions from my W2. I’m pretty sure these were all lumped together as untaxed income. I don’t know what impact, if any, it has on EFC/FA though I guess it’s up to the school to use the number however they want. I did have one school ask me to provide documentation for the source of the IRA distribution.
My mother is just afraid that my son will live the life of a “struggling musician” and while he may be able to pay his bills from month to month, he may not be able to save for a house or retirement. She wants to be able to give him that nest-egg.
@ScreenName48105 It seems to me that your mother can dispose of her estate as she wishes without consulting you. You certainly have no right to know what she does with her money. If she chooses to create a trust that turns the corpus over to your son at age 25, but until that time neither he nor anyone else is to be told the details of the trust, that is her right as a trustor. Just a thought.
@ScreenName48105 - I would not bank on receiving Merit aid stacked on top of financial aid. Many music programs that offer merit instead will reduce loans, work study etc (and replace with merit).
@ClarinetDad16, I’m not exactly sure what you mean. Son got most of his acceptances just last week and only has received financial packages from two schools so far. They both have a combination of merit, grant, loans. One school includes work-study. Both meet my FAFSA EFC. Both private. Are you saying that’s unusual?
@EarlVanDorn, I don’t really understand the thrust of your comment either. Are you saying that all this is none of my business? Or are you suggesting that she could set up a trust that in such a way that we wouldn’t know about it, so would not have to declare it for FA?
That’s very thoughtful…and very nice. It will be what it will be. I’m sorry that this grandparent is ill.
But really it is what it is. your son will have a huge asset that can also help pay for his college costs…this freeing up some money for his eventual home purchase, or whatever.
ETA…the grandma in this family dies when DS was a HS senior. DS is also a musician. It never dawned on us to try to preserve her money for future spending of any kind. We used a lot of it to help pay for college costs for our two kids. Grandma would have liked that as much as buying either of them a house.
@thumper1, I understand your point but this is just my mother’s wish and whether it’s logical or makes sense to someone else is basically moot.
Just so it’s very clear, we (and the “we” includes my mother) have planned very carefully (and diligently, I might add) to be prepared for my son’s college costs and, really, up to two months ago, we thought it was a done deal. This inheritance won’t free up money for future use because all it will do is replace lost financial aid. We’re not planning on any loans.
And before someone mistakes this as a complaint about how FA works, it’s not. I’m just trying to be informed about things like the difference in how my assets are used in the calculations vs my son’s assets. The distinction may be arbitrary to us but can mean a big difference.
@ScreenName48105 I wasn’t trying to insult you, rather pointing out that you really didn’t need to know any details of how your mother disposes of her estate. If you don’t know, you can’t report.
OP’s father is deceased and OP is an only child. There’s a good chance that OP will be administering the estate, and in that case OP will have all the details.
Thanks for the clarification @EarlVanDorn. I’m going to suggest that my mother investigate that option.
@ScreenName48105 - you are confirming what I expressed.
The merit aid did not bring your package up to exceed your EFC.
if this inheritance is going to end up in anyone’s account…the parents is the better choice. Parent assets are assessed at 5.6% of value while student assets are assessed at 20%. This is for FAFSA purposes. Schools using the Profile can assess your assets differently.
OP’s mother has made it very clear that she does not want to pay for college. Those are her wishes. If she were healthy there is no reason to think she would have contributed to college. I applaud OP for looking for ways to honor her parent’s wishes
I don’t think it would be an issue if the grandmother was still alive. She’d keep her money/house/assets and hold them until she was ready for grandchild to have them. Problem is if she dies, something has to be done with the assets while the student is applying for financial aid. Too many assets, no aid.
Sometimes the timing just doesn’t work and you have to make other decisions with the information available at the time. Dream school with no aid and high cost but then can’t save the assets? More affordable school with no financial aid, but there is still a house (or money to buy one) at the end of the of the college life.
I do not think that you or your mother have been properly advised about trusts. I can think of many ways to structure a trust with a contingent interest in your son that no school could possibly consider a current accessible asset. You need a better lawyer.
The only thing we know about this amount is that it’s between 200k and 1 million, per posts #1 and #2. That’s one big spread.
The lower figure is more at risk, but anything more than that leaves plenty of cream.
The OP said the school(s) being considered have both merit aid and financial aid, and give FA for EFCs over $20k. Too many variables to know if these schools will eliminate the need based aid after the inheritance because not many give need based to EFC’s in the $20-40k range and also give merit.