Does anyone have any insight on how to explain special circumstances? My special circumstances are quite complicated – separated but not divorced, sold the family home last year and each received half of the proceeds from the sale. I cannot use the proceeds for tuition because it’s going to pay for my assisted living facility someday! Seriously, it’s the only retirement I’ve got. I turn 60 in August. Oh, and I just lost my job.
I hate to,say this…but you do not have a special circumstance. You have half of,the proceeds of a house in a savings account…right? This will be counted as an asset. You still have time to put an allowable amount into a real retirement account.
Colleges are not going to give you need based aid to pay for your future assisted living.
If you are the parent and you lost your job…you are a dislocated worker. But that will only help you for FAFSA purposes…and only if your income is below a certain threshold.
Is your income below $50,000 a year? If so, and you are a dislocated worker, you might qualify for,the simplified needs test. Your assets would not be counted. But your income must be below $50,000 for the 2015 tax year. Was it?
Yes, I earned below $50,000 in 2015.
You have to fill out the FAFSA with the information you have on the day you file: earnings, age, savings. You’d file the special circumstances after your awards are determined. If you are a dislocated worker, and made under $50k, and live in the right state, the asset questions may be able to be skipped and then the money in your accounts will not matter. You fill in your age, and they’ll know you are going to be 60 soon if you say you are 59.
For CSS, there are places to explain on the form.
If you had earned income in 2015, you can put some of that money into an IRA. https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits
If you had self-employment income, there are other/additional options: https://www.irs.gov/pub/irs-pdf/p560.pdf
If that won’t tie up enough money quickly enough to make a difference, meet with a responsible financial advisor, and ask about putting your money into an annuity. Those are tricky, so you will want reliable help.
All that said, the most valuable gift you can give your college-applicant child(ren) right now, is to be completely straight with them about how much you truly can pay for their education(s). If everyone is on the same page about what will be considered affordable, and what won’t, then your child(ren) can focus all college applications with that in mind, and will be prepared to toss any unaffordable aid package straight into the recyling bin.
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Seriously, it’s the only retirement I’ve got
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Does your H have a retirement? If so, you can get half of that if you’ve been married for a decent amount of time. You should also qualify for social security. If your husband earns a bit more than you do/did, then you may qualify for SS at half of his rate. You need to have your atty look into all of this. And, you may need to get spousal support. Do you have a good divorce atty? GET ONE>
Agree with the advice you’ve gotten so far- cash on hand is not a retirement plan; being straight with your kids is a giift for a lot of reasons, and Mom2 is spot on- you need a good lawyer ASAP.
I have no idea what your kids dad has in the way of financial resources and how invested he is in getting your kids educated and independent- but you need a lawyer to make sure that they (and you) don’t get shafted during the divorce. There are guys out there with assets and a steady income stream and a secure retirement plus a pension whose idea of college planning is “They live with their mother, they’ll get financial aid”.
Sitting on a bucket of cash in lieu of an IRA is not a special circumstance. Find a lawyer. And best of luck to you in your job search…
Actually, every resource I have seen so far has said that an unusual one-time capital gain is, indeed, a special circumstance.
I have an attorney. All the divorce papers have been filed. He is paying some support, but it is not enough for me to live on.
Good luck to you. I hope things improve for you.
I think you have a case that the money is a one time event, but even if your child goes to a FAFSA only school, you will have to explain this asset being in a non-retirement account for the next 4 years. You will be relying on the professional judgment of a FA officer, and it may be a different FA officer each time.
If you qualify for simplified assets on the FAFSA because of your income and ‘displaced worker’ status, you will not be assessed 5.6% of this money each year. If your status changes, you will be. I think it is likely a FA officer would view this money as a one time event the first year, assuming you will buy a new home or somehow place it into a protected retirement account. I also think it is likely that in year two, that money sitting in a savings account will look a whole lot more like a big sum of money available for paying college tuition. If the money is for retirement, put it in a retirement account.
The only way you will know for sure is if you ask the school. For my older D, I found that half the schools to which she was accepted were willing to recalculate aid based on special circumstances. The other half were not. You won’t know until you ask.
You will need to make the case that this is in fact a one time only capital gain. What was your basis in the house? Taking a 400K asset (a house) and cashing it out for 400K is not a capital gain, it’s just liquidating an asset.
But since you likely want the money in a retirement account anyway… invested with some growth potential, not earning a tiny amount in interest in a savings account, you need to explore the best way to use the funds.
By support- alimony? Child support which ends when your kid leaves for college or turns 18?
Glad you have a lawyer…
If you earned less than $50,000 AND you meet one of the following criteria:
- Are able to file a 1040A or 1040 EZ form
OR
- Qualify for a means tested benefit like SNAP or free/reduced lunch
OR
- Are a dislocated worker (you say you are one...so,this would apply if this is true)
You would qualify for the simplified needs test for FAFSA EFC calculation purposes. This would mean that your assets (including your bank accounts) will not be counted in the FAFSA calculation.
It doesn’t matter what state you reside in for this to be true. This is a federal simplified needs test and applies to anyone filing a FAFSA.
NOW your state may still require you to complete the asset information for state aid purposes…but if you qualify for the simplified needs test…your assets would not be counted in the FAFSA formula even if your state requires them for another reason.
Any chance you earned less than $25,000 last year? That would qualify you for an auto $0 EFC.
However, this does not mean you will suddenly get a goldmine of need based financial aid. T simply means that for FAFSA purposes your assets will not be counted. Most schools using only the FAFSA do not guarantee to meet full need.
Schools that DO meet full need usually require the Profile…and there is no simplified needs test there. Your assets will be counted.
You can certainly make a request for a special circumstances consideration. But please don’t be surprised if the school says no…and you should have plan B just in case they say no. These are considered on a case by case basis. Some colleges do not do special circumstances considerations at all. So…check with each school to find out their process.
Thank you for all of your input. I have since spoken with a financial aid advisor recommended through my daughter’s school. His advice is to write a longer, more comprehensive letter explaining special circumstances, and to forward it to every school that my daughter has applied to (or been accepted to.) He also recommended using specific numbers wherever possible. (For example, the gross proceeds of the home sale on the 1099-S is the purchase price of the house – not the dollar amount I received after the mortgage company had been paid off and all fees paid.)
As for the house being a liquid investment? Seriously? I had 2 mortgages on it. And I would like to invest my share of the proceeds of the sale into another residence. When I can afford it – if ever.
The house isn’t necessarily the liquid investment. It’s the money you have sitting in a regular bank account that IS is liquid investment.
Also, the schools will be looking at your bank account balance as the asset…so if the house sold for $500,000 and you had $400,000 in mortgage debt, that would leave $100,000…subtract your closing costs also…and then decide by 2. I’m using this as an example onky…but that would give you less than $50,000 in your account because of this house.
And if you qualify for,the simplified needs test…the FAFSA calculation will not include your savings…at all.
If these are Profile Schools…that’s a whole other situation.
Glad you are getting professional advice.
If I were looking at a PJ that asked me to ignore a significant sum of money in the bank because the parent wanted to save it for retirement, I would not call that an unusual one-time capital gain. What you are referring to is one-time income that is reported on the FAFSA … such as back-pay, a lump-sum buyout, a one-time bonus … and because income counts more heavily than assets, the PJ can remove the amount from income & instead consider it an asset. A PJ does not ignore money … it allows it to be considered differently, in a manner that might be more beneficial. There can be some exceptions … for example, the parents used the money to buy a home, and they can document the amount. In that case, it may be possible to remove the money from the formula. But if the parent HAS the money, it should not be ignored.
You can write the longer letter, and maybe the schools you are dealing with will give you more in financial aid. For FAFSA only schools, it is likely they will award FA based on the application and there is no place on the application to explain all this, so you have to appeal after the award is made. My experience was that the schools require you to fill out their form, provide the information they require (tax forms, pay stubs, reason for being a displaced worker such as lay off), and the letter could be attached to that.
It sounds like this is not a huge amount of money but of course it is important to you to save this asset. Even if you do not get a special circumstance override, only 5.6% of the fund, after your asset protection allowance (which isn’t very large for single parents), will be expected to be contributed to college payments. For most CSS schools, your ex’s financials will also be considered so again, your savings may not matter that much in the big picture (two salaries, his half of the house sale, any other assets).
I went to a fin aid workshop that addressed special circumstances. The advice was to write a simple but comprehensive special circumstances letter w/ specific requests. For example, in your case you would ask for the proceeds from the house to be not considered as an asset because you are unemployed, they are your only retirement funds and you plan to invest them accordingly. Some people have success w/ this and others don’t. Apparently some schools just toss the special circumstances letters, and some schools take a close look at them. It varies.
And remember…special circumstances considerations are handled on a case by case basis. So yours might ( or might not ) be considered.