dhodson wrote:I am not in any financial industry but in essence what you are trying to do is hide assets or turn them into non countable ones for financial aide purposes.
Just to clarify this is a possible future scenario where I could early retire in the middle of year N (aged late 50s) and oldest child would start college in Fall of year N+1. (Yes, I'm a late parent.)
I will never get a pension or social security, so thinking about getting an SPIA is just standard prudent retirement planning, as has been discussed on this forum many times. But with retirement and kids in college starting about the same time, I need to understand how various retirement funding activities interact with FAFSA (and CSS Profile etc.).
Here's the form: http://www.fafsa.ed.gov/fotw1314/pdf/PdfFafsa13-14.pdf
The form does ask separate questions about income reported to the IRS and income from work. Certainly, the annuity payments would show up on your tax form, so, yes it shows up as income. If the annuity is purchased with after tax money, then, if you don't purchase the annuity, it'll show up in the checking/savings account reporting.
I can't comment on whether you're better off purchasing the annuity or holding the cash to qualitfy for student aid. The rules are complex and may depend on your other income; for example, below $50,000 of income, other assets are not used in calculating eligibility.
Thanks for the form. I knew about the Simplified Needs Testhttp://www.finaid.org/educators/needs.phtml
and I could probably stay beow $50k income (AGI), but I fear that many colleges may ignore that "rule" and still consider assets despite low income.
Anyway looking at the FAFSA form, it looks like the taxable portion of an annuity payout would be included as part of AGI on line 83, while the nontaxable portion of an annuity payout may possibly
(?) be included as part of AGI on line 92f. The FAFSA form says "Untaxed portions of pensions from IRS Form 1040—lines (16a minus 16b)", but it's not clear if that should also include the untaxed portion of annuity payouts. Does anyone know?
I also don't know how untaxed income affects the calculation of EFC. I'm guessing that income is income, whether taxed or not, so the whole annuity payout counts as income. Is that right?