Does high % of income deferral effect EFC under CSS/ PROFILE

privateID
Fri, 30 Nov 2018 15:52:08 +0000

I am in a similar situation as you, but a little ahead of you time wise. I have 2 in college (one at a meets full need school) and 1 in high school. For many years I maxed out 1 401k, 2 Roth IRAs and an HSA (my wife’s 401K has high fees, no match and not so great choices so we passed on that one). Here are some observations:

1. I would not assume your kid will get into a meets full need school. My kid had great grades, solid SATs and many extra curricular activities. He got shut out of all but one of the meets full needs schools. He was pretty disappointed not getting into to some of those schools (he is very happy where he is now).

2. I have seen thumper1 make his “financial gymnastics” comments a few times. Although I think it’s solid advice, I do feel some of the gymnastics are worth it. This is certainly true at meet full needs schools, but could (you will never know for sure) be at other schools too. You will find when your kids go to school the temptation is even greater to do things with assets. Proceed carefully as the financial gymnastics can have a long-term affect. For example, any potential extra FA you get discontinuing tax-deffered savings could be offset by losing on years of compounding tax-deffered savings.

3. I think I am in a similar situation to you in that I feel I am 401K/IRA rich but current asset middle class. Although it was not my plan (I never really expected to get financial aid), it is a good place to be for financial aid. I came to the conclusion that I needed more cash available during the college years. So I backed off on my retirement saving the past few years. The tax factor (paying lee in taxes affecting aid) and the need more cash factor made that decision easier. In fact, many years of maxing out the various plans have put me (and sounds like you) in a position to do that. One correction to something someone said above - Jan 1 of a child’s sophomore year is when you can max out tax-deffered giving without any impact to FA.

4. When factoring what you can pay for a school, it is important to take everything into consideration. You mention 529 savings and income getting you to around $30K. There’s also AOTC which effectively adds $2,500 to what you can pay. In addition, cash flow becomes important. You don’t get that AOTC money back till the next year. Loan’s also are a consideration. I have always maxed out on any subsidized loans offered and plan to pay them back in full before any interest is charged.

5. I have wondered how I feel about putting myself in the best position to get as much FA as possible. Am I taking aid away from other students who need it more simply because I did the research? This is certainly an individual feeling. There are times I knew of financial gymnastics I could have played but didn’t partly because of this feeling.

To be honest, I think it is great you are investigating all these things now.

Good luck