I think this is a super interesting idea. I wonder how many people do it and how it works out for them? I’d love to see the research.
Quit your job by the end of your kids’ sophomore year (or agree to take a low/no salary), give away most of your assets, move to a low income neighborhood, send your kids to low-performing schools, live very frugally (no vacations, no purchases beyond necessary, no treating yourself and your family) and enjoy your quality of life, which might or might not include more quality time with your kids (but will certainly include more financial stress). More seriously, get a job that only pays 40-75K per year, and you may very well get the financial aid that you hope for (if your kid gets into one of those skills).
I have a colleague who has worked full-time at my place of employment for free for the last 10 or 15 years after leaving his first career. I have no idea if it helped his kids with their college choices. They landed well, but I always assumed that he was paying full tuition. He didn’t sell his house. However, I think in general, he was happier and more fulfilled than he was before leaving his first job.
It seems like houses don’t count in the need based aid formula for most schools? Can you purchase an expensive home if housing markets are relatively stable?
Transferring assets isnt incredibly difficult if you have trustworthy family members and leverage your lifetime gift exclusion. The lifetime gift exclusion is currently $13.61 million.
You could probably also do a huge Roth conversion to reduce your retirement accounts.
Maybe an irrevocable trust?
There’s probably other strategies.
Nothing I post constitutes legal, tax, or financial advice.
Coming from a high income family I can tell you the benefits far outweigh the minor negative of having to be full pay for college. Even then, what you pay is up to you. Having your kid(s) attend a school that costs $90k is a choice, not a necessity. I’ve got friends who are really comfortable (second home, country club membership, fancy cars etc) and they told their kids that they’d pay for UMass or any college with an equivalent cost - that was their limit. Allowing my kids to go anywhere they’d like is our choice (plus we saved) - my kids are lucky to have parents who are willing and able to pay for school. So many kids don’t have the same advantage so I think, overall, we are extremely lucky and I’m grateful.
As far as I know, neither the FAFSA nor many CSS profile schools use the amount in a family’s protected retirement accounts, but I don’t know for sure. However, until recently, all retirement contributions were fair game
I dont think retirement accounts count against FAFSA but if they count against other need based metrics, a Roth conversion may be a possibility since they probably dont distinguish between pre-tax and after tax assets.
The benefit (other than qualifying for aid) would be that you have tax free income during retirement with no RMD requirements (although benefit isnt as profound after Secure 2.0). It may be a double-win if you can also qualify for need based aid.
Nothing I post constitutes tax, legal, or financial advice. Please consult your own legal or financial professional.
100% agreed. I wouldn’t make the same choice as you expenditure wise but that’s exactly your point - we all have that choice. Like you, I am 100% fortunate to be able to spend - whatever I wanted to spend vs. not being able to.
I’m glad those not as well off are able to share in the joy of attending college. But I wouldn’t want to trade positions with them financially - not in a million years. I’d much rather not qualify for need aid than qualify.
When I was 23, I had a sales job and I made a lot of commission and I complained to my dad about taxes. And my dad said, the more taxes you pay, the more money you made. That’s a good thing.
So if you choose to pay in full at a high priced school and you are able to do so, then congratulations - you had a successful financial life, one that others can only dream about.
No one would want to trade that for the opposite!!
Be thankful for your accomplishments - and then spend appropriately to comfort level.
And hopefully these students with need will one day be able to share in the same situation as the full pay families when their kids go to school. It’s certainly a tougher climb for them and for those who are able to get there, I admire their resilience.
I think retirement accounts have always been excluded when calculating financial aid. Where people can get into trouble is by saving for retirement outside of IRA/401k/403b etc.
As I understand it (based on my older kid), the old FAFSA did see you contributions to your 401k ( not the savings itself) as available for tuition, and the FAFSA calculation adds that untaxed income back to your AGI. The new FAFSA does not add those contributions back to your income.
Same. They don’t assess marginal post-tax income or unprotected assets at anything close to 100%, just a fraction, so you are pretty much always better off having more income or unprotected assets than less.
And personally, I think the more budget these colleges can put together for need aid, the better, even if we do not benefit ourselves.
I believe that with FAFSA simplification, the contributions made to employer-sponsored plans (deduction from paycheck going straight to 401K) are not counted but contributions to traditional IRAs, for example, are still added back to income and counted (not the asset but the annual contribution). Of course this is a FAFSA change only…for CSS profile schools, both types of retirement contributions are still reported.
Y’all—I leave the thread for a day, be a goody-goody and drive my daughter’s teacher home from the airport—and I get back and see the “35 new messages” and get happy. Then, I see a lot of people getting a little pissy. Let’s just be happy that our kids can go to college! And be buddies. There’s a shortage of buddies in this world (I know if I start quoting The Princess Bride, everyone will block me).
(Seriously, if a family member shouts, “I am heading to X,” or equivalent, on the way out the door, there is at least a 50% chance I will shout that back to them. Unless they shout, “I’ll be back,” in which case I will shout, “I’ll be Mozart!,” which doesn’t even make sense unless you realize that in my head, I first translated what they said into Arnold’s Terminator voice.)
Let’s just be happy that our kids can go to college! And be buddies. There’s a shortage of buddies in this world (I know if I start quoting The Princess Bride, everyone will block me).