I think things have gone OT on this thread. OP is asking how to minimize income and EFC on FAFSA.
Specifically asked whether suspending contributions to a retirement plan would support this minimization due to the fact such contributions are added back to income and there would be lower taxes subtracted from FAFSA formula if a contribution were made.
IMO, the above effect would be offset by the lower tax bill.
Lowering income by not taking capital gains, not exercising options , not taking distributions from pension plans can be done, but there often are financial benefits In other areas in making those moves.
If it is anticipated that taking money out of the retirement plans is in the picture, it would be preferable to simply not contribute to them instead,
Monetary gifts from grandparents, relatives should given to parents rather than to the student. Payment of student’s bills are untaxed income to the student and can increase the EFC. Kids’ assets should be spent for necessities or reimbursement of parents’ expenses rather than be sitting there and included in FAFSA assets. The day one filed FAFSA should be chosen carefully and in light of money sitting in accounts.
To the OP…the only real ways to reduce income are…
- Reduce your current job to part time...which will reduce your income.
- Quit your current job and get a lower paying job.
BUT remember…students filing the 2020-2021 financial aid forms are required to use the 2018 tax year info. And for 2021-2022, they will be required to use 2019. So…the above “solutions” are likely too late to do to impact financial aid for the next two years.
The fact of the matter that one should also keep in mind is that unless OP is applying to schools that guarantee to meet full need, going through a lot of contortions to reduce EFC is not going to necessarily generate a whole lot of financial aid.
There is no requirement for his son’s school to increase aid according to change in EFC when a sibling enters college. Most FAFSA only schools do not do that
Most schools do not meet need according to FAFSA EFC, so chances are that the second student is not going to get need as defined by that EFC met. Still, there is more leeway in dealing with the second student by comparing packages and casting a wide net. First student is pretty much caught by policies and practices of the school he chose.
No. I’m saying that I’ve never seen persuasive evidence that any school actually does this. And then you come along and say this: “Some schools do use qualified pension plan assets as part of the financial aid calculation.” When asked for verifiable information that supports this statement, you respond with an anecdote only. Didn’t you, within the past week or so, make a post here warning that anecdotes should not be relied upon when trying to plan a college financial aid strategy? I thought that was good advice.
CSS does ask about trusts, even if you can’t access that $$ for years. But how could they include pension in EFC, you aren’t getting that til you retire. It’s not an unprotected asset, like a bank account or mutual fund.
We should get back to OP’s situation.
The same is true of FAFSA.
Thanks to everyone who contributed. I really do appreciate the info and got what I needed. As just an FYI, I got some college info as far as colleges that meet needs from a couple of websites.
Essentially, and despite feeling like a wounded antelope on the plains of Africa in this forum, which is really a compliment to the knowledge and experience of those commenting in this thread, I will go out on a limb and say that generally, I feel confident that my second child will get a very good financial aid package that HE will be comfortable with and be able to pay off loans after college that won’t kill him.
As just an FYI, my 401K is essentially not material, unfortunately. My first son had financial aid packages that were all over the place. He did get a better deal at a few private schools than the state schools.
The only think I can offer is that a huge consideration is shopping. Shop for schools like you would a big ticket item. Prices are all over the place as there are so many factors. Also, keep in mind that many of these schools don’t necessarily adhere to the regulations and shoulds and woulds mentioned in this thread, not everything is written in stone but if it is, that doesn’t mean it will be followed, like it or not. Afterall, the people managing this in colleges are human.
Thanks again.