How to Shelter Slender Assets for FAFSA and CSS?

<p>I am a single mom with a daughter that will go to college next fall. She is a strong student and has heart set on going to a top school. The problem of course, is how to pay for it. Dad is out of the picture and will not be contributing support. </p>

<p>I make a modest salary of 48K. I don't own a home and have no real property to speak of. I did, however, receive a bequest 2 years ago when my mom passed away (roughly 120k). I am not very knowledgeable about financial matters, and because of the wall street meltdown of the last few years, I have not felt confident to invest it anywhere. So now it is just sitting in a savings account. My daughter also received a few thousand dollars in the bequest, which I put in a custodial savings account linked to mine. (As she is a minor, I'm not sure if this counts as a parent asset for fafsa purposes.) </p>

<p>This represents my entire life savings, and I had hoped to use it to buy a house with a little something for retirement. But FAFSA is now due, and I discover from looking at the Estimated Parent Contribution on various cost calculators, that FAFSA will expect me to pay large chunks of money, which will rather quickly deplete my savings and wipe out any future security I might have. </p>

<p>How best to shelter these funds? Can they be moved to other accounts or investments (IRA, 529, real estate) that will cause FAFSA to regard them in a different way? And can I change my FAFSA later this year if things change? Any and all advice welcome!</p>

<p>Buy a house.</p>

<p>Yes, you can make an IRA/Roth IRA contribution as qualified retirement accounts aren’t reported for FAFSA but you cannot make changes to your asset values once you file FAFSA (unless there was an error made). 529 accounts are reported as parent assets. The good news is that parents do have some asset protection, although it’s fairly low for single parents, and parent assets above that are assessed at 5.6% per year. Another plus is that you actually have savings to help fund your EFC, unlike many families. You’d probably benefit from reading the book “Paying for College Without Going Broke”. It’s updated annually and your local library may have a copy.</p>

<p>Hopefully you and your daughter have had a candid discussion about finances and she knows what your limit on parent contributions will be. If not, this would be an excellent time to do so. Good luck!</p>

<p>Thanks for your response! </p>

<p>Yes, I’ve thought about buying a house, but I won’t be able to buy a house in the next few days, when the FAFSA is due for the schools my daughter is considering. (Also, I’ve been holding off buying property because the market is still going down in my area, and there’s a possibility I may be transferring to a new state later this year.) </p>

<p>What about other strategies? Or combinations of strategies?</p>

<p>I hope if she is a strong student, she has applied to schools which meet 100% of need.
While these schools do use Profile, they also may be open to further explanations about your limited resources and adjust her aid accordingly.</p>

<p>In your conversations with your daughter about the best ways to meet your goals for homeownership, retirement, and education, you should talk about a gap year for her. Thus would give the two of you time to get a better handle on the many factors that affect you both.</p>

<p>Although retirement accounts are listed on CSS, I don’t think they are touched. Anyone? And if your D’s custodial account is a UTMA, you can move it to a custodial 529 (prior to filling out the form) and it will be assessed as a parental asset, as stated above, at 5.6%.</p>

<p>Since you mention the CSS profile, I want to throw in that many schools that require the Profile, also require the non custodial parent to complete the non custodial profile. You say he is out of the picture, but most schools have stringent requirements regarding waiving the non custodial waiver and it will require digging into the schools FA webpages or calling them as each school may differ. Often they require information from outside reputable sources regarding the NCP . Refusal to pay or refusal to be in the child’s life is not usually enough.</p>

<p>You will get some relief from the asset protection built into the FAFSA formulas, but it is ridiculously small for a single parent, somewhere around $15000.</p>

<p>Your daughter’s custodial account will count as her asset (assessed at 20%), unless you roll it into a UGMA 529 plan, after which it will be treated as a parent asset (assessed at a max of 5.6%).</p>

<p>In the short term the only thing I can think would be to buy some sort of single-premium life insurance or annuity, as those are not counted for FAFSA. You would want to make sure the commission is as low as possible, and that you can get your money out in a few years without penalty.</p>

<p>If you want to push the letter of the law, drop the whole amount into a Roth IRA until after you file the FAFSA, and then withdraw the excess contribution (it is not breaking a law to overfund an IRA). If you withdraw the excess before you file your 2012 taxes next year, there should be no IRS penalties. Of course this could cause a problem down the road if anyone notices all your retirement assets vanished, unless you do this every year.</p>

<p>You could ask for a professional judgment by the FA officer that this savings is really retirement savings that wasn’t put into a tax-advantaged vehicle like an IRA, depending on the school they might make an adjustment, but you can’t count on it.</p>

<p>Also, you should be able to make both 2011 and 2012 Roth IRA contributions right now. This will remove either $10,000 or $12,000 from your asset pile, with the higher amount if you are over 50.</p>

<p>mars5555 - I just realized you said that you make less than $50,000.</p>

<p>Do you (or can you) file form 1040A or 1040EZ when you do your taxes? Or are either you or your D eligible for any Federal benefit programs such as SSI or reduced cost school lunch, etc?</p>

<p>If either, you are eligible for the simplified EFC formulas, which don’t count assets at all.</p>

<p>Just don’t get a raise at work. ;)</p>

<p>Disregard please</p>

<p>^ Not talking about auto-0. The simplified EFC formulas are different, and ignore assets, but still assess income.</p>

<p>Check pages 4 and 5, in the section “Which students qualify for the simplified EFC formulas”:</p>

<p><a href=“[/url]”></a></p>

<p>According to this document, the auto-0 amount is $32,000. Maybe it is out of date.</p>

<p>(Deleted due to misinformation)</p>

<p>~cross-posted with Notrichenough</p>

<p>According to the doc I linked to, the income amount for auto-0 for the parents of a dependent student, and for an independent student with dependents other than a spouse, is the same - $32,000.</p>

<p>An independent student without dependents other than a spouse is not eligible for auto-0.</p>

<p>I am boggled by the Simplified Needs vs Auto-0 Formulas!!
Do they both do the same (allow for assets not to be included?)</p>

<p>According to this: [IFAP</a> - Dear Colleague Letters](<a href=“]IFAP”></p>

<p>the auto-zero amount for 2012-2013 has been reduced to $23,000 from $32,000.</p>

<p>There’s no mention of a change in the amount for the simplified EFC formulas, so I assume that is still $50,000.</p>

<p>Which schools did your D apply to?</p>

<p>Many many require the financial info of her bio dad, unless you were approved for NCP waivers. Have you done this?</p>

<p>The schools that require CSS Profile in addition to FAFSA, probably will not ignore assets even if FAFSA does. </p>

<p>Did your D apply to schools that meet need?</p>

<p>Does she have a financial safety? </p>

<p>It does sound like you may need to buy a home.</p>

<p>If the OP has income less than $50K AND fills another one of the requirements (files 1040EZ or 1040A, OR qualifies for a means tested benefit like free lunch or food stamps…OR is a dislocated worker), the student could qualify for the simplified needs test, I believe whereby the assets are not considered in the EFC formula.</p>

<p>Even with a $100,000 amount in the bank, the FAFSA assessment would be 5.6% or so…about $5600…leaving about $95,000 in the bank. The OP could assume that $5600 in additional EFC amount, and then buy a house before NEXT year’s FAFSA filing.</p>

<p>Thanks so much for posting these ideas.
I guess I’m just stuck this year. I don’t qualify for 1040EZ. And can’t buy a house at this time, but perhaps later this year will do so.
How do I get NCP waiver for Dad? He has no income and is not even living in the US. Does his CSS statement have to be filed by the same deadline as FAFSA? Yikes.</p>