My daughter is a freshman at a school that awarded her a full tuition merit scholarship. We have not taken any student loans for her freshman year and do not plan to for upcoming years.
The school requires that students with merit scholarships fill out the FAFSA for their sophomore, junior and senior years as well. Merit scholarships are handled by her school’s Financial Aid office just as need-based aid is.
Last week we e-filed our 2014 federal tax return and were going to file the FAFSA as soon as the IRS data retrieval tool became available, but then my mother suddenly passed away, leaving me money.
Some of her money passes to me immediately without going through probate, therefore our assets have increased as of right now.
I have yet to figure out what to do about my newly-inherited IRA and don’t know whether, or how, to list it on the FAFSA. We have not yet been to the banks to change the names on any of the accounts.
So here are my questions:
• Will my daughter’s merit scholarship possibly be affected? It seems that it should not be, but the FAFSA will show our EFC is higher.
• Does anyone have a clue whether-- or how-- I would include the inherited IRA on the FAFSA?
I don’t think it will affect the merit award. Some schools require you to file fafsa to be sure that any federal money available will be collected as well.
If it is truly a merit scholarship (no need criteria and not a grant based on financial need), it is independent of EFC. If you want to be absolutely sure, call the scholarship office. It will depend on the specific criteria (whether there is any need considered) for this particular scholarship.
I’ve been reading this article about how the a 2014 decision of the SCOTUS ruled that inherited IRAs are not retirement accounts. The article then says that for purposes of the FAFSA, they would probably still be considered retirement accounts.
It won’t affect the scholarship. You’ve already gone through a year paying all other costs. The school requires a FAFSA submission in order to make sure they get any federal aid like Pell Grants for any students that qualify. My DD1’s school required the CSS Profile for her NMF scholarship. Fortunately I only had to do that her freshman year once it was clear we didn’t qualify for any federal aid.
The rules on inherited IRA’s are very complicated and as a point of fact, if you have not retitled the accounts, you have not actually gotten the money yet. Even for assets not going through probate- you have 9 months from date of death to file your mom’s tax returns, and you shouldn’t be in a hurry to distribute ANY assets until you’ve sat down with a lawyer (and possibly a CPA in the state where she resided) to evaluate your options.
Once the assets have transferred you don’t have a lot of flexibility (i.e. the “step up” in the cost basis on any securities is a one time only deal). So before you “inherit” a nickle, figure out how to optimize potential tax savings and deferrals.
I am sorry for your loss. But don’t be in a hurry to start moving money around until you’ve got the entire picture in place. I know several people who mis-titled an inherited IRA and are paying for that mistake; I know others who assumed that an asset is an asset is an asset for inheritance purposes and that’s not true- they sold stock to make it easier to distribute evenly to the heirs when they should have transferred the stock to retain the capital gains advantage on appreciated assets. And I know others who should have allowed some assets to pass directly to their children (and did not) and they now regret it- and still others whose marriages fell apart after receiving an inheritance and it tied up their divorce (and cost them) due to unnecessary haste in settling the estate.
Slow down. And to answer your question- you are not likely to see a change in the merit scholarship assuming your D has maintained whatever GPA or other requirements were in the original letter.
At least for this year, since your taxes have already been done, I would use the 2104 tax prep #'s and not do anything on the inheritance since it has not been finalized. Next year, worry about doing all the paperwork involved. So sorry for your loss.
You are getting a lot of good advice here. But as far as the full tuition merit scholarship, you need to check out what the terms of that award are. If it’s purely a merit award, then no problem. But if it’s a merit within need and some need is needed to keep it, it might be at risk.
I appreciate all the replies. We picked up Mom’s ashes today and have been in a flurry of emptying the contents of her Independent Living apartment so it can be re-marketed. Finally wrapped things up today.
We will slow down on the various accounts.
She’s kept her GPA well above the required 3.5 so all should be well.