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Workers Comp Settlement Impact My Aid?

phan211phan211 Posts: 3Registered User New Member
Hello,
I suffered some back injuries last year while working and now I have a five figure check from the workers comp insurance company. I attend an in-state school and currently have financial aid and scholarships. I want to cash this check and put some into my checking account and then use the rest to invest into a bond fund, some into a Roth IRA and some into a permanent life insurance policy like universal or whole life.

My concern is that this money is going to make me ineligible for financial aid and scholarships. Does anyone know what implications cashing this check and then using that money to fund these different investments will have on me?

Thank you
Post edited by phan211 on

Replies to: Workers Comp Settlement Impact My Aid?

  • swimcatsmomswimcatsmom Posts: 14,999Registered User Senior Member
    Workers compensation has to be reported as untaxed income on FAFSA, so may have an impact on your aid. How much will depend on how much the compensation is and your other income. How you use the money will impact FAFSA also. If it is in a protected category at the time you file FAFSA (like an IRA), then it is not a reportable asset. If it is cash in the bank, then it is reportable.

    Cashing or not cashing the check is not going to make a difference. The money is available to you if you have received the check.

    You are likely to be better off with this money that you were without it even if it impacts your EFC for one year.
  • OperaDadOperaDad Posts: 2,474Registered User Senior Member
    Does anyone know what implications cashing this check

    Doesn't make a difference. What makes a difference is what is reported by the Company to the IRS. They will report that whether you cash the check or not.

    Or, do you mean should you accept the settlement, or contest it? Usually they will not cut a check until you have agreed to the settlement. If you want to contest it to delay receiving the payment until a future year, that might help.
  • cnp55cnp55 Posts: 3,459Registered User Senior Member
    Will you have long term health issues where you might need the money from this settlement?

    If not, consider yourself lucky that you now have the money to pay for college.
  • phan211phan211 Posts: 3Registered User New Member
    swimcatsmom - can you please explain more by what is a protected asset? I am looking at putting that money into a bond fund, some into a Roth IRA and some into a permanent life insurance policy like universal or whole life.


    OperaDad - Once I deposit this check, I understand the workers comp company will report that to the IRS?

    Yes, the settlement has been finalized and I want to save some of this money that I am getting for a future back surgery when the doctor says I am old enough. So part of my questions about where to save/invest this money is because I know I will need it in a few years for medical expenses.
  • cptofthehousecptofthehouse Posts: 24,894Registered User Senior Member
    The check will be reported whether you deposit it or not. Just like pay check An employer sends the IRS all of the information on what you are paid whether you stash the checks uncashed in your drawer or whether you cash them.

    You might want to get a letter from your doctor about the back surgery and the costs that may not be covered by insurance and the time you will be off your feet as a result of this and see if a professional judgement can be made to ignore the check or a portion of it. Otherwise, you sit out the year the check is reported as income and put it in a Roth or other protected account or gift it to your parents if they will put it away for you until you can use it for your surgery recuperation time
  • OperaDadOperaDad Posts: 2,474Registered User Senior Member
    OperaDad - Once I deposit this check, I understand the workers comp company will report that to the IRS?

    They will report to the IRS during their normal reporting cycle based upon when the check was cut without regard to when you cashed it.
  • cptofthehousecptofthehouse Posts: 24,894Registered User Senior Member
    Friends of ours had two kids in college, one an entering freshman, one a rising junior, when the Dad in the family early retired or was RIFed or something and given a sizeable cashout. Very nice, except every penny and more (they were also trying to borrow and scrape together whatever they could) was designated to a business venture that was going to be the source of income for the family. The one in college was on financial aid, and the payout eliminated that entirely, and the younger one did not qualify due to the payout. With two in college, they would have done pretty well in terms of aid. They discussed the situation with the colleges, and they refused to budge.

    So the kids took a gap year and then went to school when the payout was no longer an issue. Sometimes that is what it takes. The schools cannot, will not ignore a payment. It's income. Them's the rules. If it's going directly to a surgery that year, that's one thing, but to hold for future surgeries, I doubt that will hold much water. So if it truly makes it an issue, then take off the year, find more work and take a few classes on a part time basis that can move your grad date up.
  • phan211phan211 Posts: 3Registered User New Member
    Thank you for the replies.

    Operadad - so it seems there is no way around the reporting of the check from the insurance company.

    I guess the only other question is how future returns are viewed. I am going to put this money in a couple of different places like a Roth IRA, maybe some tax advantaged bond funds and universal life insurance. Does anyone know how/if these investments and their future gains are viewed?
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