My child has committed to play a sport at an Ivy, starting in 2018 (VERY excited). We own a small business (2 employees), so our income will be unique of course. I started a 529 for both of our kids at birth and they’ve accumulated nicely ($100K each). The Ivy school is “need based” and I understand we’ll need to complete the CSS Profile. We don’t want to be devious, but what advice do people have for “positioning” savings, 529s, other assets to maximize financial aid?
I’ve run the school’s calculator and even though our income is below the supposed 100% aid magic number, we’re still looking at paying about 50% of the COA. I believe this has to do with our home equity (maybe $150K), 529 savings (I’m going to transfer some of this child to other child 529), 401K and large savings balance.
I would like to take that savings (unexpected gift 2 years ago) and “strategically” move it. Any other tips/ideas to consider? Thanks in advance.
Unfortunately the net price calculator will not necessarily be accurate for you as a business owner. There will be allowances that you were able to write off on your taxes that will be added back in as income on the profile. In addition any pretax contributions that you made to your retirement account will be added back in as in one.
If you or your spouse are the owners of the 529 accounts, moving funds from one to the other won’t make any difference: they both need to be reported on the financial aid forms as parent assets. If your kids are the owners of their own 529 accounts (i.e. they are custodial accounts), moving funds from one account to the other would be illegal.
401(k) and other qualified retirement accounts will not count against you for need-based financial aid.
Unless you “startegically” move it by making a bona fide gift of it to someone other than your spouse or the student, there’s a good chance that you’ll either be A) committing financial aid fraud, or B) doing something that doesn’t make financial sense in any context.
If it makes sense to pay off your mortgage, AND you are talking about a college which won’t assess home equity in determining aid, then go ahead and “strategically” pay off your mortgage. If you haven’t funded your 401K yet for 2016, go ahead and fund both 2016 and 2017 (although you will risk overpaying for 2017 since you don’t know what your income will be for this year.) If you don’t have life insurance, go ahead and buy some-- that will use up some cash, and is a prudent move anyway.
What other “strategies” could you possibly do that aren’t fraudulent or stupid? You can’t park your money in someone else’s account with a “wink wink” that you’ll take it back- that’s fraud. You could buy a Jag but that’s stupid.
We paid off our car, our real estate taxes for the next year, all insurances, and paid ahead our mortgage for as much as I could. All it did was leave less cash in our savings, which positioned us slightly better, however, it was also mentally nice knowing our car, insurances, and mortgage payments were already taken care of for a while so tuition didn’t hurt quite as much once due. Pay off all credit cards would be the first thing I’d do. Anything that’s charging you interest or that you will have to pay soon anyway. Pay it before filing if you have the cash.
You could also ask the financial aid office to run numbers for you, as a small business owner, there’s no other way to know exactly what aid to expect from them.
Your child is committed to play in 2018? Is that the 2017/18 school year? Will your athlete start school in the fall of 2017? If so, I hope your child has a likely letter in hand just to be sure. If you are talking about 2018/19 school year, then I guess a lot could happen between then and now financially. Keep in mind that they are now looking at “prior-prior” tax records, so you have to show a little more history when applying for financial aid than just last year.
And as a recruited athlete your family can ask the coach to submit a FA pre-read. You will be filling out a worksheet that is very close to the CSS. Your student’s FA office will then be able to give you a better sense of your COA.
Thanks for the feedback, it’s really appreciated. @redpoodles those are good ideas! I was considering an annuity under the business name, but that has lots of cost and of course liquidity issues until retirement. @blossom the only issue with using the extra savings for 401K is it’s locked up for a long time (I’m 45), similar to the Annuity. We do have life insurance… I was looking for any ideas I wasn’t thinking of!
@Sam-I-Am she’s a 2018 commit, so enrolling for 18/19.
Your financial aid for the 2017-2018 school year will be based on your 2015 tax return information.
For 2018-2019, it will be the 2016 tax year.
Assets are reported as of the day you file the financial aid forms.
As @BelknapPoint said…unless you actually give this money away with no strings attached to someone not in your immediate family…it’s still your money. Where were you thinking you could “strategically” place it?!
If the school doesn’t look at primary home equity, that’s a really good place to put extra savings. It won’t be so liquid when you use it to pay down a mortgage, but it’s a legal, financially sound way to decrease your assets for financial aid consideration.
Click on “Home Equity Spreadsheet” in the link below, or take a good luck through the school’s FA web pages. Some schools are much better than others in being open about what factors influence need-based aid. (Caution: the spreadsheet may have out-dated information.)
Most COFHE institutions will expect that your child’s 529 plan will be 100% available over the course of 4 years to help pay for college (1/4 each year for 4 years). Transferring funds from the 529 of one child to the other (you are required to report both on the CSS Financial Aid/PROFILE) will 1. seem odd, and promote questions from a discerning financial aid administrator and 2. depending on your answer to their question as to why your up and coming child has more in their 529 account than the other (you may want to seriously consider what your answer to this question will be), you will end up right back where you started, except with a seriously marred sense of trust on the part of the financial aid office in question. As a former financial aid administrator with 20 years of experience at high priced, super-competitive liberal arts institutions, I would advise against this move. Their follow up question to your answer will be, “When did you move the funds, and why?”. Your “strategy” will easily be on display.
As noted previously, if both 529 accounts are parent owned, moving funds from one to the other won’t make any difference, because they both have to be reported as a parent asset. Furthermore, the individual account balances are not reported on FAFSA or Profile, only the aggregate balance of all 529 accounts owned by the student or parents, and the accounts are not identified by beneficiary on the forms either, so if any funds were moved form one account to another, a financial aid administrator would never know it from what’s reported on FAFSA and Profile.
Some financial planners will try to sell you products, like annuities, that are not asked about on the FAFSA. This is not going to help you with the Profile, which asks more detailed questions.
Your assets are generally assessed by the Profile as available to spend down at a rate of 5% per year. This would include your home equity (in most cases, but not all) as well as your savings, including both 529-s and your other savings. Money in IRS approved retirement savings (IRA, 401k, etc) is NOT assessed. Max out your retirement contributions before filing your financial aid forms. Another trick is to pay your property taxes, home owner or health insurance or other large bills before reporting your savings. Debt does not make you eligible for more aid, so paying off a credit card or loan if possible is a way to reduced your savings without changing your aid result.
If you want to play with what if numbers, you can put different scenarios into the college NPC or the college boards EFC tool: