<p>Just wondering how using each of these will affect next years financial aid? We have some savings (in the bank barely earning interest) we could use but wondering if we should use most of the money that's in a 529 (that we were originally thinking we would only use 1/4 of the total, each year), or use our HELOC with a 2.99% interest rate. Thinking we should not use the HELOC until absolutely necessary, but not sure. I know that reducing the equity in our home would also be a benefit. (We just made our last mortage payment last month!) We'd like to do it in a way that will not adversely affect fin aid for next year....or which might put us in a better position for financial aid next year.</p>
<p>It depends on how your school calculates your need, Try to figure out what would increase your expected contribution from that school. How is the 529 being assessed vs home equit? For instance, if the school is FAFSA only or the home value is capped, definitely the 529. I am inclined to empty the 529 first since that is the purpose of the fund.</p>
<p>Just as a warning, if things change in the economic climate, the bank can pull that HELOC or change its terms in a heartbeat. I know people to whom this has happened to the point that with such favorable percentages, it might be a wise move to borrow that money and pay the small interest to preserve its availability. With inflation a possibility, that credit line can disappear. You gotta play with the numbers and also keep certain balls in the air. A bad scenario is to use up the 529, and lose the HELOC, When you loose the HELOC, the school does not adjust the value of your home, you understand. Even those who can’t get a HELOC still get assessed by formula what the value of their homes are. Maybe start funding a Roth IRA or 401K to shelter some of that money.</p>
<p>Both schools my daughter is considering are CSS Profile schools. Will the finaid offices there tell me if our home value is capped? Not really sure what that means. If you could explain, I’d appreciate it! Also, are you suggesting that we use some of the HELOC , just to keep it open? (is borrowing 2 - 3K enough to keep it open?) Would the bank cancel it if we are not using it?! Unfortunately we will not be able to continue funding our Roth IRA while my D is in college, and again in 4 years when when our 2nd child starts. We are going to contribute to my husband’s 401K, but will not want to pay the penalty to withdraw from it early for funding college. Luckily he has an annuity and pension that will (hopefully) continue to grow for the 8 years that we won’t be able to contribute much to our retirement. Thanks so much for your help.</p>
<p>I don’t know if they will tell you, but folks I’ve known who don’t call at the busy time of the season will often get a brief perusal and explanation of how fin aid works at a college.</p>
<p>A cap on your home value is that your home is assessed at a dollar amount that is a certain percentage of your income. Say your home is worth $300K, but your income is $60K. If the cap is at 1.25, for example, the value of your home would be assessed at $60K x 1.25 or $75K instead of the full $300K as an asset. Makes a big difference as you can see. THe schools generally then subtract an allowance from your totall assets as they calculate them and then apply a percentage, usually about 5-6% as part of what you should be paying towards college. </p>
<p>A bank can cancel your credit line any time. When things got rough economically, a number of folks got their credit lines yanked for no good reason. Then, that’s it. You may not be able to borrow against your house. Have to reapply for a new line to get any loan against the value. What some folks we know have done, is yank that money if they can put it in a Roth or somewhere so that option won’t be gone. </p>
<p>Many 401Ks have loan provisions so you may be able to borrow against it favorable too.</p>
<p>That’s a great idea to take some $ from the HELOC and put it in a Roth IRA. We will look into that, Just sent emails off to the colleges inquiring as to whether they have a cap on home equity. Thanks!</p>
<p>There are so many possibilities and you have to know how a school calculates need and what it considers before making changes. BC, for instance, counts qualified plan money. Also if house value is going to be an issue, now might be the time to get that new roof and use some of the HELOC, along with any other purchases you have been considering and put off. Might as well get some of it subsidized by the FA. Also it depends on the % of need the school tends to meet and if it guarantees to meet need. It could make no difference at all at some schools. Some just use PROFILE the first year, and FAFSA thereafter. Kinda crazy, isn’t it?</p>
<p>Wait a minute CP. Are suggesting that lynnmo borrow from a HELOC (and pay finance charges on the amount drawn) to fund a Roth IRA? I guess if one is going to do repairs on a home with the HELOC (and pay finance charges), one might as well fund the Roth IRA.</p>
<p>I’m assuming that OP is parent of a junior? Just remember that contributions to one’s 401K are not sheltered during the junior/senior year of high school. If OP’s child is younger than it makes good sense to pack in the 401K. One of the most valuable lessons I learned from reading Paying for College without Going Broke and attending fin aid meetings at various colleges was that contributions to 401k are counted as income and therefore can increase EFC without realizing it.</p>
<p>This is so confusing! My daugher is a Sr. and is probably going to commit to Fairfield University (by Sunday!) which does not guarantee to meet need, but did! This is with merit aid, grants, and Stafford Loans. But of course our EFC is higher than we ever expected it to be, so therefore the need to use HELOC and/or savings in addition to the 529 and current income. Thankfully, the mortgage is now paid off, which frees up a good chunk of $ to pay some of the costs. The idea to use the HELOC to fund our Roth sounds like a good one. We can earn some interest beyond the 2.99% we will be paying on the HELOC. Also, it will guarantee that the $ on the HELOC doesn’t get snatched if the economy (continues to) go downhill. I will have to see if there is a fee/penalty to withdraw from the Roth for education expenses. Fairfield does require the CSS Pofile every year. Anyone else have an opinion? Thanks again!</p>
<p>It is my understanding that with a Roth, you can always withdraw the principal without any penalty, (and I believe the earnings could be withdrawn if used for education). However, beware… if you withdraw principal in September 2012, for example, to use for the 2012-2013 school year, then that withdrawn amount gets ADDED on your CSS Profile form as untaxed income for the 2012 year, which will affect aid requested in 2013. This continues to baffle me, except that I believe it is an attempt to keep people from doing what was suggested, tucking money away so that it was not counted as an asset on the FAFSA or Profile. However, you COULD keep the principal in the Roth and just withdraw it for your daughter’s last 1 1/2 years of school, when you won’t be completing the FAFSA/Profile any more.</p>
<p>Wow, thanks for that info. Now I’m not sure what to do, as we will be completing the FAFSA and profile for the next EIGHT years, because when my oldest graduates college, my youngest will be graduating from HS and going off to college! This may not be a good option for us until the 2nd child is finishing up college. Thanks!</p>
<p>Just wondering…why would the withdrawn amount (principal) from the Roth be added on CSS Profile as ‘untaxed income’? The money that was put into the Roth was already taxed, right?! (This is not $ from a 401K, where the $ invested/saved is untaxed income.) Please correct me if I’m wrong! I’m new to all of this!</p>
<p>Lynnmo- I agree with you and question that assumption also. Roth contributions are after-tax dollars, so why would withdrawals count as income?</p>
<p>Regarding using up your 529 vs taking money from a HELOC, we are in a similar position. I think the best thing (for us) is to spend down the 529 first before going into more debt drawing on the HELOC. But this thread has gotten me thinking–our HELOC is at 3%. It might make more sense to leave money in the 529 accruing interest (if it is more than 3%). It’s really a crap shoot and like gambling–will Heloc rate go up? Will rate of return on 529 go down? The less assets one has (529), the better it looks for next year’s fin aid app. The bigger the mortgage (and it sounds like you don’t have a mortgage) the better it is for you if you D goes to a CSS school. All these numbers are giving me a headache ! lol</p>
<p>Let me say, firstly, that I would love to have someone prove me wrong… I agree that it doesn’t make sense that Roth withdrawals need to be included as untaxed income, but that is what I keep seeing. Here are a few links I found:</p>
<p>[FinAid</a> | Saving for College | Retirement Plans<a href=“look%20at%20the%20end%20of%20the%20first%20paragraph%20after%20the%20bullets”>/url</a> (sorry, don’t know how to insert a working link)</p>
<p><a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/1109360-ira-fafsa.html[/url]”>Ira/fafsa - Financial Aid and Scholarships - College Confidential Forums](<a href=“Your Guide for College Financial Aid - Finaid”>Retirement Plans and Saving for College - Finaid)</a></p>
<p>I believe it falls under the instruction on FAFSA of #93 e. - “untaxed portions of IRA distributions”. These links pertain to the FAFSA, but it is my understanding that the CSS Profile treats it the same way.</p>
<p>Anyone with other thoughts?</p>