Daughter is currently freshman in college
2015 income
Parent 1 $19000 (which includes about $14000 in lump sum retirement payout included on w2)
$25000 in pension payments
Parent 1 is 62 years old
Parent 2 $14500 from wages on w2
Parent 2 is 57 years old
Approx $3000 in ordinary dividends
2015 AGI may be in $62,000 range without an IRA contribution
Savings, etc down to about $500
Other assets about $100,000 with most of it in mutual funds
Also have retirement assets including both traditional and roth ira monies and federal government Thrift Savings Plan
Live in one of the states that requires listing of assets on fafsa even if you meet simplified needs test
Daughter received several smaller outside scholarships freshman year that will not be available anymore
Besides her contribution to college costs, we will probably need approximately $30,000 per year for college and extra living expenses beyond our normal income and pension payments
2016 income will be approximately
Parent 1 $29,000 in pension payments
Parent 2 $14,000 in wages
Any dividends/capital gains incurred
Daughter’s income is approx $3,000 and $1,500 in savings
Questions:
Should we consider a traditional IRA contribution for 2015 to get us in range of $50,000 AGI (although IRA contribution would get included back on FAFSA as untaxed income anyway)? To do this we would have to sell mutual funds and incur capital gains for 2016, since we really have no other source of funds except retirement accounts.
For 2016 college/living expenses, would it be best to sell mutual funds and incur capital gains or withdraw money from IRAs- traditional or Roth, or employer (federal government) Thrift Savings Plan? (probably about $30,000)
Would there be any benefit to waiting until October/November when next year’s FAFSA is available to withdraw funds. That would probably mean having to come up with about $10,000 for college in August- maybe a home equity line of credit?
Personally I don’t see how you can afford to send your D to this college. You are fighting a delaying action. What will you do next year and the year after for the $30K each year? Your assets will essentially be gone at that point. Where is she attending and what is she studying?
How mic is your shortfall annually…in other words, how much more do you need to be able to pay your daughter’s college costs.
I hate to say it…but I think this college is not affordable on your current income. I could NOT recommend withdrawing money from your retirement accounts at all. You are too close to retirement age, with not enough time to replenish those accounts.
For the FAFSA, when your state asks for assets, they are used in the calculations for state aid. This would have nothing to do with eligibility for federal funding. With an AGI of $62,000, your kiddo would not likely be eligible for any federally funded grant money.
Also, very worth noting for you…this FAFSA, 2016-2017 AND next 2017-2018, will both be using the 2015 tax year information. It sounds like it too late for you to change what happened in 2015.
I realize we are fighting a delaying action. College costs will probably be about $18,000 to $20,000 per year but we will need other funds for expenses/home improvements and repairs. We do have adequate retirement assets and Parent 1 will start social security in 2-3 years.
Total college costs will probably be about $18,000 - $20,000 per year and daughter will most likely have $3500 direct loan to make cost about $15,000 - $17,000. We do have retirement funds with iras, federal govt thrift savings plan, and parent 1 will start social security in 2-3 years.
If your daughter will be a sophomore, she can take $6500 in Direct Loans in her name. In my opinion, that is better than you withdrawing retirement funds.
Again…I’m going to say, I would not recommend you withdrawing a nickel from your retirement accounts to fund college.you don’t have enough years of work left to replenish those accounts.
You can always repay loans with retirement income…but if you withdraw money from your retirement accounts, you will reduce your retirement income. that is retirement income you will not likely ever be able to replace if you withdraw it now.
Ok thanks. Would it be beneficial to sell mutual funds and incur capital gains for 2016 before we file the current FAFSA to contribute to a traditional IRA if we can get our AGI just below $50,000 for 2015? Or just let AGI for 2015 be in $60,000 range? Daughter’s college costs are all paid for the current school year. Then we would probably have to sell about $10,000 -$12,000 for that now and another $10,000 later in year for first semester next year plus home improvements.
You say you have adequate (7 figure?) retirement savings, and pensions.
Parent 1 is over 59.5 so he can access qualified retirement plan balances penalty-free. Though this will raise your AGI for FAFSA.
It sounds like you are in the 15% marginal tax bracket for ordinary income. Therefore any capital gain net income is taxed at zero%, up to taxable income of $75,300, but will also raise your AGI for FAFSA.
What about a home equity loan for $13k (or more), then contribute the $13k to IRAs by April 18, 2016 for the 2015 deduction? This way your AGI is below $50k for 2015. The 2015 income tax year will be used twice for FAFSA.
Then, if you wait until 11 months from now (2017) to do more substantial stock sales or retirement withdrawals, you will be in the clear since the last tax year that counts for FAFSA for your current college freshman daughter is 2016.
What state grants are you hoping to get? With all this planning to get AGI below $50k to exclude assets, but just 1 in college, I assume she won’t get any Pell?
Did she leave her current year direct loan on the table? Consider having her take that now, even though you are paid in full from outside funds, especially any subsidized portion. Then you can save that and use it toward any shortfall to tide you over until January 2017 when you can generate all the taxable income you care to with no effect on the FAFSA.
You said D had some outside scholarships, did you have expenses of tuition, fees, books above the scholarship amount? Then you could claim the American Opportunity tax credit for 2015.