Long Term FAFSA/College Strategy

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Topic Author
justsomeguy2018
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Long Term FAFSA/College Strategy

Post by justsomeguy2018 » Wed Sep 18, 2019 6:57 pm

Thinking way ahead here...

Are there any particular strategies for planning for college 19-years away?

Specifically, is there anything to be aware of in terms of where to allocate excess cash flow (e.g. 529, brokerage account, home principal payoff, etc.)?


Current situation (obviously may be drastically different over the course of the next 19 years):

Current HH Income: $250k
Current Retirement Accounts/HSAs: Maxing Out each year
Current Assets: $470k (~62% in retirement accounts/home equity)
Retirement Timeline: Minimum 22 more years, maximum 32 more years

My thinking is to start out with putting ~$400/mo into a 529 plan, but just wanted to see if there were any other advisable suggestions, particularly anything that may impact FAFSA if needed later down the road (no idea if we would even qualify), like e.g. having the 529 in grandparent's name
Last edited by justsomeguy2018 on Wed Sep 18, 2019 8:32 pm, edited 1 time in total.

rkhusky
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Re: Long Term FAFSA/College Strategy

Post by rkhusky » Wed Sep 18, 2019 7:05 pm

Spend all money not protected by retirement accounts.

Seriously? At your income, you are not getting financial aid. Unless you quit working in the next few years.

Grt2bOutdoors
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Re: Long Term FAFSA/College Strategy

Post by Grt2bOutdoors » Wed Sep 18, 2019 7:13 pm

Start funding a 529 plan, now. You aren't getting any financial aid other than loans.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Topic Author
justsomeguy2018
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Re: Long Term FAFSA/College Strategy

Post by justsomeguy2018 » Wed Sep 18, 2019 7:14 pm

rkhusky wrote:
Wed Sep 18, 2019 7:05 pm
Spend all money not protected by retirement accounts.

Seriously? At your income, you are not getting financial aid. Unless you quit working in the next few years.
Lol. So if we are short on cash to pay for the college bill, and our income is too high for FAFSA, is the gap typically filled by private bank loans? Or how does that work exactly?

Sorry I am clueless about this stuff, I received a full-paid scholarship + stipend to a state school and never have dealt with college financing questions before, so am trying to navigate my way around it and make the right choices early.
Last edited by justsomeguy2018 on Wed Sep 18, 2019 8:32 pm, edited 1 time in total.

Grt2bOutdoors
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Re: Long Term FAFSA/College Strategy

Post by Grt2bOutdoors » Wed Sep 18, 2019 7:17 pm

justsomeguy2018 wrote:
Wed Sep 18, 2019 7:14 pm
rkhusky wrote:
Wed Sep 18, 2019 7:05 pm
Spend all money not protected by retirement accounts.

Seriously? At your income, you are not getting financial aid. Unless you quit working in the next few years.
Lol. So if we are short on cash to pay for the college bill, and our income is too high for FAFSA, is the gap typically filled by private bank loans? Or how does that work exactly?

Sorry I am clueless about this stuff, received a full-paid scholarship + stipend to a state school and never have dealt with college financing questions before, so am trying to navigate my way around it and make the right choices early.
The standard right now is $5,500 in Stafford loans, followed by financing through Parent Plus loans (whereby the parents co-sign the students private bank loans). The right path is to set aside monies each month with the intent of paying some percentage of schooling costs down the line. The first dollar you put away today, is one dollar + X% in interest for each year the loan would be outstanding down the line. Anything helps.
Use the Vanguard College Planner tool, to guessestimate what school might cost based on inflation variables which you can choose to modify and what target you are seeking to fund. You'll get better approximates on actual costs as you get closer to college time, but for now, not a bad tool to use.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Beehave
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Re: Long Term FAFSA/College Strategy

Post by Beehave » Wed Sep 18, 2019 7:39 pm

It's really not possible to know what structures and processes and regulations will be in effect in nineteen years. Saving money that grows tax-free if used for education certainly seems prudent. It seems unlikely that there will be backsliding or reneging on that commitment by the government, whereas the way FAFSA will work (if there is a FAFSA in nineteen years) will almost certainly change.

Savings bonds (check to see if I-Bonds have that "untaxed if used for education" feature) and 529 savings thus seem prudent.

One factor I believe in place currently in the FAFSA which conceivably could come into play is that the more family members enrolled (I believe at least half-time) in college, the smaller the amount of income FAFSA takes to be available per family member to spend on college expenses. Of course, nineteen years is a long time to delay any education for yourself or your spouse, but if that policy is still in effect years from now, you might want to get another degree at that time, or time your childrens' enrolments to optimize this aspect.

Best wishes.

Workable Goblin
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Re: Long Term FAFSA/College Strategy

Post by Workable Goblin » Wed Sep 18, 2019 7:42 pm

rkhusky wrote:
Wed Sep 18, 2019 7:05 pm
Spend all money not protected by retirement accounts.

Seriously? At your income, you are not getting financial aid. Unless you quit working in the next few years.
Not getting need-based financial aid, which is not quite the same thing. I had a full-ride, all-expenses paid merit-based scholarship (that didn't ask for anyone's income) for my undergraduate degree, plus a stipend from the VA thanks, I believe, to my dad being a disabled veteran, so I never even had to look at a FAFSA. One of my brothers, meanwhile, joined the Air Force via ROTC and chose a "priority major," so they paid for his degree, too, or at least a good chunk of it. It's not inconceivable that the same kind of thing could happen in this case.

Of course, you can't count on it happening, either. So the suggestions by the previous poster to focus on saving in tax-advantaged instruments as a good "default" position seem sensible to me. Worst case, there's a lot of saved money that didn't end up being needed because the kid joined the military or got a scholarship or something, which is pretty far away, in my estimation, from being a bad scenario to have to deal with.
Last edited by Workable Goblin on Wed Sep 18, 2019 7:45 pm, edited 1 time in total.

livesoft
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Re: Long Term FAFSA/College Strategy

Post by livesoft » Wed Sep 18, 2019 7:44 pm

@justsomeguy2018, if you are still working when you pay list price for college education, then you will have no problem just using your paycheck to pay for college based on your current income and the fact that you contribute the max to all those tax-advantaged accounts. You may have to temporarily stop those contributions to pay for college expenses, but that will be no big deal because you will have front-loaded all your retirement accounts and be well on your way to easy street when you retire.
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slowmoney
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Re: Long Term FAFSA/College Strategy

Post by slowmoney » Wed Sep 18, 2019 8:04 pm

So, this is my personal experience in saving for kids’ college expenses. I have a senior and a sophomore in college. A senior and freshman in high school.

We managed to save about $20,000 for each child in a Coverdell Education Savings Accounts. The senior still has a few thousand remaining the Coverdell. We might have to reassign the remaining amount to another child (It’s unclear how this will go over with the senior :oops: ). The senior has obtained several scholarships as her college career has progressed. I think you should look at Coverdell ESA as a possible college fund source.

Before college, I kind of regretted the Coverdells. I thought a 529 would be better. I don’t think so anymore. People are always trying to SELL 529 plans, it’s a bad sign. If people are making money on 529s, it’s costing you. More on this later….

Despite the college hype and financial pornographers, it really only takes a modest investment on the parents part to save for college.
Our kids attend a BIG 10 school. Tuition, Room & Board at most public BIG 10 school are between $20,000 to $30,000 a year. So, that is a total of $80,000 or $120,000 over 4 years.

It seems most people feel it is prudent and necessary that the student has some skin in the game in paying for THEIR college degree. If you and your student filled out FAFSAs, the student will qualify for $27,000 in federal loans over 4 years.

Next, there are four summers that your student could work full time. The BIG 10 universities seem pretty eager to hire students. The student could easily make $6,000 to $7,000 over the course of a summer working on campus. That is another $28,000 over four years.

Additionally, you can easily find a campus job during the school year at like 8 to 10 hours a week. If your student can’t work 8 hours a week, their probably not qualified for their program of study. Over 4 years, this is another $12,800 dollars.

So, the student can kick in a total of $67,800 towards THEIR college degree.

This leaves between $12,200 or $52,200 to pay for college. Boom! That leaves the parents with saving around $700 per year for 18 years to kick in the remaining balance. (Actually, with interest there will be more than enough money) Open a Coverdell at a local bank and save $700 per year in a secure CD. It costs nothing. Maybe some time on your part but really this is for your offspring. Additionally, you never have to risk losing money. It will simply be there when your kids need it. It seems most 529s want to invest in stocks and bonds that can lose value at the worst possible time. Additionally, is it really necessary to invest $12,000 in the stock market?

Now, for the more expensive college which requires a $52,200 investment. You can only save $2,000 a year in a Coverdell. Thus, $2,000 a year, for 18 years, earning 2.5% interest is around $45,000. So, you are almost there. The one daughter lives with 5 roommates and spends considerably less than $10,000 a year on room and board plus she is developing skills in getting along with people. So, in fact, it is still quite doable.

But a STATE school!

Warren Buffet obtained his undergraduate degree from the University of Nebraska-Lincoln, a BIG 10 school.

Neil Armstrong (1st human on the moon) is a graduate of Purdue University, a BIG 10 school. Wikipedia stated, “An uncle who had attended MIT advised him that it was not necessary to go all the way to Cambridge, Massachusetts, for a good education.”

I am good friends with a guy at IBM, who is working on the team that is building a quantum computer. He graduated from South Dakota State University.

The current Miss Czech-Slovak US is a graduate of University of Akron, Ohio and she works for Virgin Galactic as a test engineer.

IMO, private, top tier, expensive schools are really just Hollywood, self-aggrandizing, popularity contest that produce gossip. (Note current college admissions drama.)

Of course our mentor, Jack Bogle, attended Princeton. But as a control cost guy, I am sure he would understand the value of controlling your college cost.

Lastly, I did buy into the “you can’t borrow for retirement” diatribe. But sitting at the kitchen table looking into your kid eyes and saying that is, well something quite different. So, save a modest amount in a Coverdell ESA, fund your retirement and have the student pay for most of that “State School” education. Look, this is what we are willing to contribute to your education, the rest is your degree.
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justsomeguy2018
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Re: Long Term FAFSA/College Strategy

Post by justsomeguy2018 » Wed Sep 18, 2019 8:24 pm

Thanks for the info, I think I may currently be over the eligibility limit for Coverdell ESA though:

"Also, your income must be below a certain level in the year of your contribution. Contributors must have less than $190,000 in modified adjusted gross income ($95,000 for single filers) in order to qualify for a full $2,000 contribution. The $2,000 maximum is gradually phased out if your modified adjusted gross income falls between $190,000 and $220,000 ($95,000 and $110,000 for single filers)."
slowmoney wrote:
Wed Sep 18, 2019 8:04 pm
So, this is my personal experience in saving for kids’ college expenses. I have a senior and a sophomore in college. A senior and freshman in high school.

We managed to save about $20,000 for each child in a Coverdell Education Savings Accounts. The senior still has a few thousand remaining the Coverdell. We might have to reassign the remaining amount to another child (It’s unclear how this will go over with the senior :oops: ). The senior has obtained several scholarships as her college career has progressed. I think you should look at Coverdell ESA as a possible college fund source.

Before college, I kind of regretted the Coverdells. I thought a 529 would be better. I don’t think so anymore. People are always trying to SELL 529 plans, it’s a bad sign. If people are making money on 529s, it’s costing you. More on this later….

Despite the college hype and financial pornographers, it really only takes a modest investment on the parents part to save for college.
Our kids attend a BIG 10 school. Tuition, Room & Board at most public BIG 10 school are between $20,000 to $30,000 a year. So, that is a total of $80,000 or $120,000 over 4 years.

It seems most people feel it is prudent and necessary that the student has some skin in the game in paying for THEIR college degree. If you and your student filled out FAFSAs, the student will qualify for $27,000 in federal loans over 4 years.

Next, there are four summers that your student could work full time. The BIG 10 universities seem pretty eager to hire students. The student could easily make $6,000 to $7,000 over the course of a summer working on campus. That is another $28,000 over four years.

Additionally, you can easily find a campus job during the school year at like 8 to 10 hours a week. If your student can’t work 8 hours a week, their probably not qualified for their program of study. Over 4 years, this is another $12,800 dollars.

So, the student can kick in a total of $67,800 towards THEIR college degree.

This leaves between $12,200 or $52,200 to pay for college. Boom! That leaves the parents with saving around $700 per year for 18 years to kick in the remaining balance. (Actually, with interest there will be more than enough money) Open a Coverdell at a local bank and save $700 per year in a secure CD. It costs nothing. Maybe some time on your part but really this is for your offspring. Additionally, you never have to risk losing money. It will simply be there when your kids need it. It seems most 529s want to invest in stocks and bonds that can lose value at the worst possible time. Additionally, is it really necessary to invest $12,000 in the stock market?

Now, for the more expensive college which requires a $52,200 investment. You can only save $2,000 a year in a Coverdell. Thus, $2,000 a year, for 18 years, earning 2.5% interest is around $45,000. So, you are almost there. The one daughter lives with 5 roommates and spends considerably less than $10,000 a year on room and board plus she is developing skills in getting along with people. So, in fact, it is still quite doable.

But a STATE school!

Warren Buffet obtained his undergraduate degree from the University of Nebraska-Lincoln, a BIG 10 school.

Neil Armstrong (1st human on the moon) is a graduate of Purdue University, a BIG 10 school. Wikipedia stated, “An uncle who had attended MIT advised him that it was not necessary to go all the way to Cambridge, Massachusetts, for a good education.”

I am good friends with a guy at IBM, who is working on the team that is building a quantum computer. He graduated from South Dakota State University.

The current Miss Czech-Slovak US is a graduate of University of Akron, Ohio and she works for Virgin Galactic as a test engineer.

IMO, private, top tier, expensive schools are really just Hollywood, self-aggrandizing, popularity contest that produce gossip. (Note current college admissions drama.)

Of course our mentor, Jack Bogle, attended Princeton. But as a control cost guy, I am sure he would understand the value of controlling your college cost.

Lastly, I did buy into the “you can’t borrow for retirement” diatribe. But sitting at the kitchen table looking into your kid eyes and saying that is, well something quite different. So, save a modest amount in a Coverdell ESA, fund your retirement and have the student pay for most of that “State School” education. Look, this is what we are willing to contribute to your education, the rest is your degree.

Topic Author
justsomeguy2018
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Re: Long Term FAFSA/College Strategy

Post by justsomeguy2018 » Wed Sep 18, 2019 8:28 pm

Grt2bOutdoors wrote:
Wed Sep 18, 2019 7:13 pm
Start funding a 529 plan, now. You aren't getting any financial aid other than loans.
Hypothetically speaking, if I were to suffer a massive drop in income later on down the road (IDK, say it is cut in 1/2 by the time college is approaching), does that change the equation in terms of what instrument to put excess cash now? What I mean is, if it becomes a question of assets and income is no longer a factor in FAFSA, is there a strategy in terms of 529s in grandparents names, other investment vehicles that are better options in re: to FAFSA later on down the road?

GuyInFL
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Re: Long Term FAFSA/College Strategy

Post by GuyInFL » Wed Sep 18, 2019 8:42 pm

slowmoney wrote:
Wed Sep 18, 2019 8:04 pm
Before college, I kind of regretted the Coverdells. I thought a 529 would be better. I don’t think so anymore. People are always trying to SELL 529 plans, it’s a bad sign. If people are making money on 529s, it’s costing you. More on this later….
There are quite a few varieties of 529 plans. Some are low cost, some are high cost. Although all the states have 529, you don't need to live a particular state to contribute to a 529 in that state. You don't even need to go to school in that state. The only real advantage to contributing to your own states' 529 is that some states allow you to deduct contributions to that states 529 from your state income tax.

Clark Howard has some recommendations on the best 529 plans at
https://clark.com/education/clarks-529-plan-guide/

As others have stated, at your income and asset level, I wouldn't expect any need based aid. When I went through the process, they didn't count home equity as an asset. Retirement assets weren't counted either.

texasdiver
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Re: Long Term FAFSA/College Strategy

Post by texasdiver » Wed Sep 18, 2019 8:51 pm

We have income similar to yours.

Daughter #1 is starting her senior year as an out-of-state student at an SEC (public) university. We had about $20,000 for her in a 529 which got spent during freshman year and have been just paying as we go out of cash flow ever since. There is some belt-tightening but it isn't unmanageable. I took one look and didn't even bother with the FASFA as it was pretty clear we weren't getting any grants and loans weren't going to be needed.

Honestly, tuition room and board at a public university are about equivalent to a high end day care. At your income you can manage it with cash flow if you don't have an obscene mortgage and crazy spending habits. Expensive private universities are a whole different matter.

rkhusky
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Re: Long Term FAFSA/College Strategy

Post by rkhusky » Wed Sep 18, 2019 8:54 pm

justsomeguy2018 wrote:
Wed Sep 18, 2019 8:28 pm
Grt2bOutdoors wrote:
Wed Sep 18, 2019 7:13 pm
Start funding a 529 plan, now. You aren't getting any financial aid other than loans.
Hypothetically speaking, if I were to suffer a massive drop in income later on down the road (IDK, say it is cut in 1/2 by the time college is approaching), does that change the equation in terms of what instrument to put excess cash now? What I mean is, if it becomes a question of assets and income is no longer a factor in FAFSA, is there a strategy in terms of 529s in grandparents names, other investment vehicles that are better options in re: to FAFSA later on down the road?
If your income drops to 1/4x. And you have no taxable savings or 529’s.

Grandparents 529 is shielded (for now), but once you use it, it’s all fair game. So only use it the last two years of school. And the grandparents own it, so you better trust them.

What do you want - rich with no financial aid or poor with financial aid?
Last edited by rkhusky on Wed Sep 18, 2019 8:59 pm, edited 1 time in total.

texasdiver
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Re: Long Term FAFSA/College Strategy

Post by texasdiver » Wed Sep 18, 2019 8:59 pm

justsomeguy2018 wrote:
Wed Sep 18, 2019 8:28 pm
Grt2bOutdoors wrote:
Wed Sep 18, 2019 7:13 pm
Start funding a 529 plan, now. You aren't getting any financial aid other than loans.
Hypothetically speaking, if I were to suffer a massive drop in income later on down the road (IDK, say it is cut in 1/2 by the time college is approaching), does that change the equation in terms of what instrument to put excess cash now? What I mean is, if it becomes a question of assets and income is no longer a factor in FAFSA, is there a strategy in terms of 529s in grandparents names, other investment vehicles that are better options in re: to FAFSA later on down the road?
Not really. I mean theoretically you could roll it all into a Roth and then tap the principal at a later date tax-free. But that would take a lot of gymnastics going through a backdoor Roth and you still couldn't put that much in. 529s are going to be treated like any other parent assest so if you just had it in a taxable account instead it wouldn't make any difference.

If you try to hid assests in the name of your grandparents it will come back to haunt you because that can be treated as a gift and generate taxable income for your child the following year. I'm not sure if I have the details correct. But read this: https://www.savingforcollege.com/articl ... -529-plans

rkhusky
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Re: Long Term FAFSA/College Strategy

Post by rkhusky » Wed Sep 18, 2019 9:05 pm

One other strategy is to have a bunch of kids, 10+. You will have a lot of tax write-offs in the years up to college and then having many kids in college may make you FAFSA-eligible.

Download the form and play with the numbers. It’s not that complicated.

JBTX
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Re: Long Term FAFSA/College Strategy

Post by JBTX » Wed Sep 18, 2019 9:23 pm

justsomeguy2018 wrote:
Wed Sep 18, 2019 6:57 pm
Thinking way ahead here...

Are there any particular strategies for planning for college 19-years away?

Specifically, is there anything to be aware of in terms of where to allocate excess cash flow (e.g. 529, brokerage account, home principal payoff, etc.)?


Current situation (obviously may be drastically different over the course of the next 19 years):

Current HH Income: $250k
Current Retirement Accounts/HSAs: Maxing Out each year
Current Assets: $470k (~62% in retirement accounts/home equity)
Retirement Timeline: Minimum 22 more years, maximum 32 more years

My thinking is to start out with putting ~$400/mo into a 529 plan, but just wanted to see if there were any other advisable suggestions, particularly anything that may impact FAFSA if needed later down the road (no idea if we would even qualify), like e.g. having the 529 in grandparent's name
You won't qualify for aid at that income. We didn't. I'd plan as if you won't get any. You don't know for a fact that your child will go to college. Life can and will throw curve balls.

mattshwink
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Re: Long Term FAFSA/College Strategy

Post by mattshwink » Wed Sep 18, 2019 9:27 pm

justsomeguy2018 wrote:
Wed Sep 18, 2019 8:28 pm
Hypothetically speaking, if I were to suffer a massive drop in income later on down the road (IDK, say it is cut in 1/2 by the time college is approaching), does that change the equation in terms of what instrument to put excess cash now? What I mean is, if it becomes a question of assets and income is no longer a factor in FAFSA, is there a strategy in terms of 529s in grandparents names, other investment vehicles that are better options in re: to FAFSA later on down the road?
You cannot know the future. But if you are looking for maximum flexibility for unknown future events a simple taxable account is the most flexible. Money can be used for any purpose. The disadvantage is that it will throw off interest/dividends/capital gains (and presumably a decent gain each year you withdraw it to pay for college). This can be managed with tax efficient placement, but cannot be fully mitigated (but it will be known and you can plan for it).

While some think 529s are oversold, I have found the opposite to be true. My 529 (VA) has many low cost Vanguard funds, the same ones I use in my retirement accounts. I get a small tax deduction for contributions, and tax free growth. The drawback is if I need the 529 funds are needed for something else I have to pay penalty (10%) plus taxes (if the child gets a scholarship then I can withdraw without the penalty but pay taxes).

KingRiggs
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Re: Long Term FAFSA/College Strategy

Post by KingRiggs » Wed Sep 18, 2019 9:33 pm

Usefulness of a 529 depends at least in part on what tax benefit you receive from your state. I’m incredibly lucky to live in Indiana, where we get a 20% tax credit up to $1,000 per year. like being handed a grand to grow your college fund tax-free.

I truly feel sorry for folks where 529s have been hamstrung by their state legislatures...
Advice = noun | Advise = verb | | Roth, not ROTH

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teen persuasion
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Re: Long Term FAFSA/College Strategy

Post by teen persuasion » Wed Sep 18, 2019 10:18 pm

justsomeguy2018 wrote:
Wed Sep 18, 2019 8:28 pm

Hypothetically speaking, if I were to suffer a massive drop in income later on down the road (IDK, say it is cut in 1/2 by the time college is approaching), does that change the equation in terms of what instrument to put excess cash now? What I mean is, if it becomes a question of assets and income is no longer a factor in FAFSA, is there a strategy in terms of 529s in grandparents names, other investment vehicles that are better options in re: to FAFSA later on down the road?
Income cut in half is still not going to get you a low EFC.

As far as assets, retirement accounts, HSA accounts and primary home equity are not included in Available Assets. Essentially everything else is included: cash, checking, savings, taxable accounts, 529 accounts in the parents' or child's name. 529 accounts in a grandparent's name isn't added to Available Assets, but any withdrawals from it are added as income to the child's income in the appropriate year (this is the worst place, as child's Available income is assessed at 50% of income.) In theory you can not access grandparent 529 funds until after the relevant tax years are past (with the new prior-prior tax year usage, that means spring semester sophomore year, unless the student could file FAFSAs for graduate school...). Prior-prior year tax usage means, for example, my HS freshman will file his first FAFSA in October 2022, using tax returns from 2021, for his first college year of 2023-24. His senior year FAFSA would be in October 2025 using tax returns from 2024. So any grandparent 529 withdrawals should be 2025 or later to avoid affecting his EFC.

That's assuming they don't change the calculations, again. They've been changing since we first filed a FAFSA in 2008 for the oldest (not for the better, generally). The asset protection amount has shrunk noticeably - it was ~ $40k in 2008 when we were early 40s; this year it was $13k in our early 50s (it increases with age), and may hit $6k next year! The auto zero EFC AGI level was retroactively dropped from $32k to $23k more than 5 years ago (maybe 7 years). We could hit $30k-ish, but under $23k was too tight. I believe it's slowly adjusted to $26k now, but wage growth in the meantime for us has that too hard to hit, still.

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justsomeguy2018
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Re: Long Term FAFSA/College Strategy

Post by justsomeguy2018 » Wed Sep 18, 2019 10:55 pm

teen persuasion wrote:
Wed Sep 18, 2019 10:18 pm
justsomeguy2018 wrote:
Wed Sep 18, 2019 8:28 pm

Hypothetically speaking, if I were to suffer a massive drop in income later on down the road (IDK, say it is cut in 1/2 by the time college is approaching), does that change the equation in terms of what instrument to put excess cash now? What I mean is, if it becomes a question of assets and income is no longer a factor in FAFSA, is there a strategy in terms of 529s in grandparents names, other investment vehicles that are better options in re: to FAFSA later on down the road?
Income cut in half is still not going to get you a low EFC.

As far as assets, retirement accounts, HSA accounts and primary home equity are not included in Available Assets. Essentially everything else is included: cash, checking, savings, taxable accounts, 529 accounts in the parents' or child's name. 529 accounts in a grandparent's name isn't added to Available Assets, but any withdrawals from it are added as income to the child's income in the appropriate year (this is the worst place, as child's Available income is assessed at 50% of income.) In theory you can not access grandparent 529 funds until after the relevant tax years are past (with the new prior-prior tax year usage, that means spring semester sophomore year, unless the student could file FAFSAs for graduate school...). Prior-prior year tax usage means, for example, my HS freshman will file his first FAFSA in October 2022, using tax returns from 2021, for his first college year of 2023-24. His senior year FAFSA would be in October 2025 using tax returns from 2024. So any grandparent 529 withdrawals should be 2025 or later to avoid affecting his EFC.

That's assuming they don't change the calculations, again. They've been changing since we first filed a FAFSA in 2008 for the oldest (not for the better, generally). The asset protection amount has shrunk noticeably - it was ~ $40k in 2008 when we were early 40s; this year it was $13k in our early 50s (it increases with age), and may hit $6k next year! The auto zero EFC AGI level was retroactively dropped from $32k to $23k more than 5 years ago (maybe 7 years). We could hit $30k-ish, but under $23k was too tight. I believe it's slowly adjusted to $26k now, but wage growth in the meantime for us has that too hard to hit, still.
Are withdrawals from child's or parent's 529 counted as income to the child's income in the appropriate year? If not, sounds like it is better to not have it in grandparents' names in that case.

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happymob
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Re: Long Term FAFSA/College Strategy

Post by happymob » Thu Sep 19, 2019 6:42 am

Beehave wrote:
Wed Sep 18, 2019 7:39 pm
Savings bonds (check to see if I-Bonds have that "untaxed if used for education" feature) and 529 savings thus seem prudent.
Not at the OP's income. I-bonds follow the same rules as EE bonds for education, FWIW.

workerbeeengineer
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Re: Long Term FAFSA/College Strategy

Post by workerbeeengineer » Thu Sep 19, 2019 6:53 am

happymob wrote:
Thu Sep 19, 2019 6:42 am
Beehave wrote:
Wed Sep 18, 2019 7:39 pm
Savings bonds (check to see if I-Bonds have that "untaxed if used for education" feature) and 529 savings thus seem prudent.
Not at the OP's income. I-bonds follow the same rules as EE bonds for education, FWIW.
Agree! We are sitting on a pile of savings bonds, but income too high for the tax break. We also looked at having our college student take a loan. We would then help pay it off in few years after my retirement (and subsequent drop in income). Alas, Government rules are that savings bond redemptions to pay off student loans don't qualify for the tax break :(

g2morrow
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Re: Long Term FAFSA/College Strategy

Post by g2morrow » Thu Sep 19, 2019 6:59 am

Grt2bOutdoors wrote:
Wed Sep 18, 2019 7:13 pm
Start funding a 529 plan, now. You aren't getting any financial aid other than loans.
+1 this is all you need to know

NotWhoYouThink
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Re: Long Term FAFSA/College Strategy

Post by NotWhoYouThink » Thu Sep 19, 2019 7:04 am

Colleges that offer need-based financial aid in the form of grants rather than subsidized loans are very difficult to get into, and they require a lot more information about your finances than FAFSA.

Colleges that offer athletic scholarships and merit based aid in the form of grants generally do not care about your finances.

Community and state colleges are pretty affordable.

Many students don't go to college - lack of interest, lack of ability, drug use, whatever changes in the next 18 years about the benefits of college.

So there is right now probably less than 5% chance your infant will be accepted to a college that cares whether you qualify for financial aid grants or not. The best strategy is to accumulate enough money between now and then that you don't need help paying for college, and that paying for college won't affect your retirement timeline. You make enough money to do that. Any other planning would be inefficient and prone to optimizing one factor at the expense of the big picture.

That said, investing early in a 529 can give you a nice tax break in the future if your infant does go to college and not get a big scholarship.

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Re: Long Term FAFSA/College Strategy

Post by chipperd » Thu Sep 19, 2019 7:08 am

Assuming the way college costs are calculated for your family in 19 years the same way they are now, there is a two year look back on income. So...
1) Make sure, if you have more than one child, they are born within a short period of time from each other as most schools will give both kids a break on the cost of attendance if they attend in the same year.
2) Work and save like crazy in retirement accounts (these are exempt from current cost of attendance calculations on both the FAFSA and the CSS profiles ...google CSS profile school list) until December of the year your kid is a high school sophomore. If you have access to a 457 tax deferred retirement plan, those are best as you can start to withdraw funds 1 year after separation of service regardless of age; no penalty. Also, at that point, reduce your household income to relatively low levels (think 50-70k/yr household income).
3) At some point along the line, if a CSS profile school is on the horizon, maybe when your oldest is in middle school, either mortgage your home to the hilt, or sell it and rent. Most CSS profile schools will assume a certain percentage of your home's equity to be used to pay for school each year, some as high as 5% of your home equity per kid, per year.( IE: 3 kids=12 years of school, that's up to 60% of your home's equity that gets thrown back to the CSS profile school).
I got a lot of negative blow back here on this forum for our strategy, but so far it is working to reduce the cost of private university educations and is completely above board. Our kids schools always ask for and are given our complete tax returns, W-2s and 1099s. We mortgaged to the hilt, then renovated and plowed the money back into the home. Also, paying for our three kids to go to college was the last straw that pushed me into retirement, but as an older parent, I was ready to go anyway. This reduced our household income to roughly 75k/yr. We are pleased with the relatively low cost of school for our kids thus far. Two oldest are in private universities that seem to offer a much better quality education, at about 60% of the cost to attend flagship state U honors program. PM me for details if you like. Hate the game, not the player.
Last edited by chipperd on Thu Sep 19, 2019 7:46 am, edited 3 times in total.

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Re: Long Term FAFSA/College Strategy

Post by mattshwink » Thu Sep 19, 2019 7:14 am

justsomeguy2018 wrote:
Wed Sep 18, 2019 10:55 pm
Are withdrawals from child's or parent's 529 counted as income to the child's income in the appropriate year? If not, sounds like it is better to not have it in grandparents' names in that case.
529's are parental assets for the benefit of the child. They count as parental assets. Qualified (for education expenses) withdrawals do not count as income at all and you would pay no taxes. If you make unqualified withdrawals you would pay a 10% penalty plus applicable taxes (an exception would be if the child got a scholarship, where the penalty would be waved, but the parent would still owe taxes on the withdrawal).

If you owe taxes on a withdrawal you only owe on the gain the account has had, not the full withdrawal.

One wrinkle is that on the FAFSA is that assets from a grandparent count differently from a parent. How most people deal with this is they use grandparent 529 assets in the junior/senior years, because 529 funds used show up on next year's FAFSA.

MrBeaver
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Re: Long Term FAFSA/College Strategy

Post by MrBeaver » Thu Sep 19, 2019 7:25 am

justsomeguy2018 wrote:
Wed Sep 18, 2019 6:57 pm
Thinking way ahead here...
Are there any particular strategies for planning for college 19-years away?
Current HH Income: $250k
Current Retirement Accounts/HSAs: Maxing Out each year
Current Assets: $470k (~62% in retirement accounts/home equity)
Retirement Timeline: Minimum 22 more years, maximum 32 more years
If you really want to maximize aid eligibility, here is one method I can think of:

Assuming 'maxing out' retirement accounts = 2 * 56k (mega backdoor roth) + 2 * 6k (backdoor roth) + 7k (HSA) = 131k, 250k is now in tax deferred vehicles, investment return is 5% and HH expenses are 90k, then...

Continue to max out retirement accounts. You will have approximately 4.8M in sheltered vehicles at time of college, and 1.3M in taxable. At time of college, buy a house worth > 1.3M + current home equity and quit your job two years before college starts.

If you don't have mega backdoor available, then it changes to 2.5M in sheltered accounts and 3.7M in taxable, so you would need to buy a ~5M house and then quit your job.

Of course, the property taxes on the 5M house could very well be more than the college aid your children are receiving. And if your kids go to a CSS profile school, this method won't work because there is a cap to the home equity exclusion, and there may be a cap to the tax-advantaged account exclusion (I'm not sure on that one). I don't recommend this option.

You have lots of income, and the whole college landscape is likely to change. Above about 3k/year/child of savings or the state max of deductible income (whichever is higher), I'd personally ditch tax-advantaged college savings vehicles (ESA, 529) in favor of the flexibility of a taxable account because of the future uncertainty of college cost and structure 19 years from now.

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Re: Long Term FAFSA/College Strategy

Post by Jack FFR1846 » Thu Sep 19, 2019 8:18 am

Put money into 529s and savings bonds.

Live below your means.

I suppose with $250k of income, you could be living in a hugely expensive house, but I just don't see why you won't be able to cash flow college when the time comes. I've done that for my kids on a bit over half that income, with one son getting only the crap Stafford loans and after his first year, transferring, which lost all merit aid. DS#1 graduates in December. It is nice not seeing $70k annual outflows anymore. DS#2 is in community college.

How did I prepare? I went to college finance seminars when DS#1 was 8. It enlightened me to the cost of colleges and what aid is (it's loans, people) and what I would not get (grants). I decided that I would need a million dollars to pay for both my kids. As it is turning out, I don't need nearly that much (probably half, when all is said and done), but I was braced for having to pay 2 commas. I will say that a nice surprise was help from grand parents. They pay directly to the college, so don't even have to report large payments to the IRS as gifts. We never thought about that before they started writing checks and handing them to the Bursar.
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Re: Long Term FAFSA/College Strategy

Post by cshell2 » Thu Sep 19, 2019 8:34 am

Tax laws and FAFSA rules change all the time so you really can't plan for 19 years from now based on today's FAFSA. You won't qualify for need-based aid based purely on your income, or even less than half of it, so I would just save in a 529 and periodically reevaluate, hiding assets is pointless, and really, MOST Federal aid is loans anyhow. So, you're fretting about loans and a max 6K Pell grant. The private schools that meet full need almost all use CSS profile and they dig around a lot into your finances, so hiding is harder than with FAFSA.

Just keep up to date on how things are going. I started checking the net price calculators on the schools websites when my kids were in grade school. Push for things that will get merit if you have a kid where that is a possibility. For example, I wish I would have known about prepping for the PSAT. My kid could have ended up with a free ride had he scored a little higher on that. Again though, things change and National Merit Finalists might not even be a thing in 19 years. So really, saving is your best bet for now.

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teen persuasion
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Re: Long Term FAFSA/College Strategy

Post by teen persuasion » Thu Sep 19, 2019 9:09 am

justsomeguy2018 wrote:
Wed Sep 18, 2019 10:55 pm

Are withdrawals from child's or parent's 529 counted as income to the child's income in the appropriate year? If not, sounds like it is better to not have it in grandparents' names in that case.
Withdrawals from parent or child (treated as belonging to the parent) 529 accounts are not counted as income, but the ENTIRE 529 balance (not withdrawal) is included in parent's assets (and if multiple children's 529s, then all are included regardless of who the beneficiary is).

Problem with grandparent 529 accounts is ownership/control, and timing withdrawals (how to cover the first 3+ semesters). What if grandparents pass away before college is done? I'm not certain what happens to a 529 in an estate - is it liquidated (and taxed/penalized)? What if grandparents' health require they go to a nursing home, and must spend down assets (the 529 doesn't belong to the student beneficiary)? What if there are multiple grandchildren, and the 529 pot needs to be stretched further? Beneficiaries can be changed ...

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Harry Livermore
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Re: Long Term FAFSA/College Strategy

Post by Harry Livermore » Thu Sep 19, 2019 9:11 am

justsomeguy2018,
I did not read all the responses but I can add my own long-winded screed.
The best thing we did was start a (first a Coverdell, then a 529*) college savings account for each kid as soon as they were born. Small money at first ($100/ month?) that we quickly ramped up anytime we could. Throughout the kids' high school years, it was $1K per month per kid. Even now, we are putting $500/ month into the account for the kid who is currently enrolled in college. Our theory was that having MORE money would give our kids MORE choices. If college magically became free, or the kids got full rides, we would still have the money, subject to penalties if we wanted to keep the money for ourselves. However, we also funded our retirement during that time, often to the max, as much as we could. DO NOT stop doing this if you can help it. Our income was a bit lower back then, but similar, a bit more (depends on the year) to yours now. It was hard but we did it.
Driving used cars, pestering insurance brokers every year about shopping around insurance, making sure we were maximizing tax deductions for business and personal income, and coupons (ugh) all freed up extra money to stretch and always fund the college plans. Annoying, not a fun way to spend your Saturday morning, but budget discussions and planning always happened here.
When we opened the 529 plans, I chose the state where I make most of my money (not my home state) because they offered a generous state tax deduction and my home state did not. You should look at that if it pertains to you.
When my kids were little (late 90's through mid 2000's) I figured that by the time the youngest went to college (he's 13 now) private college tuition would be around $80K per year. Friends and colleagues, even my wife, thought I was nuts. "the government will fix it by then", "people will just stop going to college", "it can't go up THAT much" were responses that I heard. I guess, sadly, I was the Smartest Guy In The Room. At least that one time ;)
When the kids were very young, I put all the money into the Vanguard S&P index, then moved into the VG "balanced" fund (old Coverdell) and "conservative" (state 529 plan's Vanguard choice) as they approached high school. When they entered high school, all balances went into VG Prime Money Market (Coverdell) or "Interest Accumulation Fund" (state 529 plan's Vanguard choice) All new contributions went into the conservative fund. I figured that I took most of the risk off the table and accepted that I was giving up on 4 years' potential gains, and was OK with that.
And even having done all that, our kids will still have their choices restricted, and we have been very honest with them about that. Our oldest is doing very well as a junior at a nice private school in the Northeast, far enough away that he HAS to be "adulting", but close enough that we don't have to fly. The school gave him a very nice +/-$20K "merit award" each and every year since he did well on his SAT/ ACT tests. We write checks for about $36K per year, and could easily do more, without having ulcers or going into debt. He takes a $2500/ year student loan so he has skin in the game. $10K debt upon graduation should be comfortable for him to service, but we are prepared to backstop it, no problem. We couldn't be happier. Another school that he got into does NOT offer merit aid, but proudly included info about their $74K/ year tuition "plan" in his acceptance letter. He really liked the school but accepted that life presents choices. Daughter is a HS senior and we have explained that we can offer a +/- $40K per year tab. She is a good student as well. She will have choices; she'll get merit aid offers, and we can cashflow most any state or less expensive private.
As other posters have said, at your income level (assuming you wish to be at a proportionally high income in 19 years) there is no way you will qualify for "need based aid". Even having zero income but a net worth most Bogleheads would assume is normal ($1M-$3M retirement accounts, some taxable, an emergency fund, maybe some investment real estate) will net $50K-$150K or more in "Expected Family Contribution" results on the FAFSA. Without getting (too) political about it, unless you tick certain boxes, or have an almost poverty level income and NO assets, "need based aid" is for OTHER people. At your income and asset level, you (and I) are expected to do everything on your own, bootstrap, AND pay for others (via taxes and higher tuition) who "need" the help. I will not delve into that topic further as I appreciate being able to post on this forum ;) Let me just say that I consider the whole FAFSA thing a big joke. I do it, our son's school requires it even for Merit Aid, but the idea that they think I can cashflow $240K per year (yes, that is not a typo, that's what it returned) is a big, sick, joke. The CSS is even worse.
Couple of suggestions: Vanguard has an excellent, simple cost calculator on the website somewhere. You can input kids' ages, tuition inflation (?) and other parameters. It spits out how much college might be in the future, how much you want to save to fund it at your choice of percentage (i.e., do you want to have 100% of it in the bank? 75%?) and most importantly, how much you would need to set aside right now in cash, or on a monthly or annual basis.
There are also many smart people over at collegeconfidential.com and you might want to peruse the financial aid board for specifics on FAFSA and CSS. They get very detailed in their analysis, very similar to the way Bogleheads get down here with ERs and taxes.
Cheers
* when our oldest was a baby, the Coverdell was tax deductible and had other advantages... I think the 529 did not even exist yet, and when it was first introduced, was not tax deductible or phased out for our income cohort (if memory serves) Then they changed the rules around and made the 529 king. At that point we stopped contributing to the Coverdell but kept the accounts open, because the spending restrictions are looser than 529s, and we like options.

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teen persuasion
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Re: Long Term FAFSA/College Strategy

Post by teen persuasion » Thu Sep 19, 2019 9:15 am

FAFSA formulas: https://ifap.ed.gov/efcformulaguide/at ... uide.pdf

Start on page 9. You can see exactly what has a lot of influence on the EFC (your income), and what has a little influence. Draw your own conclusions and make your plans, but expect the FAFSA rules to change in between now and the time your kids file the FAFSA.
Last edited by teen persuasion on Thu Sep 19, 2019 9:17 am, edited 1 time in total.

markcoop
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Re: Long Term FAFSA/College Strategy

Post by markcoop » Thu Sep 19, 2019 9:16 am

chipperd wrote:
Thu Sep 19, 2019 7:08 am
3) At some point along the line, if a CSS profile school is on the horizon, maybe when your oldest is in middle school, either mortgage your home to the hilt, or sell it and rent. Most CSS profile schools will assume a certain percentage of your home's equity to be used to pay for school each year, some as high as 5% of your home equity per kid, per year.( IE: 3 kids=12 years of school, that's up to 60% of your home's equity that gets thrown back to the CSS profile school).
Some schools don't use home equity at all and therefore one would do the exact opposite strategy (pay down the mortgage as much as possible).
Mark

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Harry Livermore
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Re: Long Term FAFSA/College Strategy

Post by Harry Livermore » Thu Sep 19, 2019 9:52 am

teen persuasion wrote:
Thu Sep 19, 2019 9:15 am
FAFSA formulas: https://ifap.ed.gov/efcformulaguide/at ... uide.pdf

Start on page 9. You can see exactly what has a lot of influence on the EFC (your income), and what has a little influence. Draw your own conclusions and make your plans, but expect the FAFSA rules to change in between now and the time your kids file the FAFSA.
I second this. The rules will change. The timing on the "2-year lookback" could not have been worse for us. They announced, and made that change LATE in the year we converted both our tIRAs to ROTHs (partly to get it done "before the FAFSA") and our income and tax bill were both unusually high that year as a result. That was a disaster for the FAFSA result. Not that it mattered much.
The goalposts get moved all the time (how about that SALT deduction???) and the hardest part about planning for FI or retirement (or college) is trying to anticipate what the Rulemakers will do next.
Cheers

petulant
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Re: Long Term FAFSA/College Strategy

Post by petulant » Thu Sep 19, 2019 9:58 am

As teen persuasion said, saving money in primary home equity and retirement plans reduces EFC and improves need-based aid the most (using FAFSA).

Another point is to try to keep assets in your name rather than the child's name if at all possible, unless it's a retirement plan for the child. EFC from parental assets is lower than EFC from child assets.

If you end up with significant savings in a 529 or other form, you will likely qualify for little need-based aid. So I see two tracks: save significant amounts based on a planned saving level, or work to max retirement accounts and pay off a mortgage. The latter will improve need-based aid and improve cashflow in case you just want to cashflow the tuition.

Re: 529 and other securities, it really depends on your specific state and risk tolerance. The state may have tax benefits for its plan or all plans; the state may also have a more or less efficient 529 plan. Mine has decent options but a .30% asset management fee (TIAA-CREF). It also has a state income tax deduction for contributions. You should think through your specific circumstances. Relevant circumstances include the expected tax bracket during college years and whether saving will be smoothed over the child's life or bunched in the first few years.

shess
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Re: Long Term FAFSA/College Strategy

Post by shess » Thu Sep 19, 2019 10:31 am

In addition to the "how much is considered" advantages which may accrue to having your net worth in home equity and retirement funds, there are two points which I find people often don't think about.

1) If you are managing your cashflow to max what you're putting aside for retirement and pay your house off ASAP, then you have a really strong cashflow stream to redirect when college arrives. Just spit-balling, say you're putting aside $25k towards retirement accounts (401k + backdoor Roth), plus $40k towards mortgage payments ($2k/mo + accelerated payments). That means you can redirect ~$40k/year to college payments, even more if you get that mortgage fully paid off (or recast it). If that is not sufficient, perhaps because of multiple students, loans can help to spread the pain into future years.

2) If you have your retirement well in hand and your house paid off, you can afford to redirect cashflow as described in #1.

Free #3) Maybe your kid will drop out and found Facebook and you'll just be stuck retiring early in your paid-off home!

Basically, when you have two decades to prepare, I think there's something to be said for arranging your life to provide a really strong foundation, rather than worrying TOO much about arranging your finances for the specific goal of college. Having a very strong financial situation pays dividends in so many ways, and sets you up to handle many eventualities.

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Re: Long Term FAFSA/College Strategy

Post by SchruteB&B » Thu Sep 19, 2019 11:07 am

slowmoney wrote:
Wed Sep 18, 2019 8:04 pm

Before college, I kind of regretted the Coverdells. I thought a 529 would be better. I don’t think so anymore. People are always trying to SELL 529 plans, it’s a bad sign. If people are making money on 529s, it’s costing you. More on this later….

It seems most 529s want to invest in stocks and bonds that can lose value at the worst possible time. Additionally, is it really necessary to invest $12,000 in the stock market?
I don’t quite follow. How is “making money” on my 529 costing me? We began investing in our state 529 18 years ago, which always included low cost, age based allocations and included a fairly big tax deduction up to $20,000 per year for joint filers. The risk automatically adjusted as the kids got closer to college age and now we have sizable gains that are coming out of the 529 tax free at a point in our lives when we are in a very high tax bracket. I don’t see the downside.

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Re: Long Term FAFSA/College Strategy

Post by cshell2 » Thu Sep 19, 2019 11:35 am

slowmoney wrote:
Wed Sep 18, 2019 8:04 pm

We managed to save about $20,000 for each child in a Coverdell Education Savings Accounts. The senior still has a few thousand remaining the Coverdell. We might have to reassign the remaining amount to another child (It’s unclear how this will go over with the senior :oops: ). The senior has obtained several scholarships as her college career has progressed. I think you should look at Coverdell ESA as a possible college fund source.

Before college, I kind of regretted the Coverdells. I thought a 529 would be better. I don’t think so anymore. People are always trying to SELL 529 plans, it’s a bad sign. If people are making money on 529s, it’s costing you. More on this later….
I would like to know what the advantage is of a Coverdell over a 529 and why you feel a 529 costs money, but a Coverdell does not?

My kids have both. It used to be that only the Coverdell could be used for K-12 expenses and I knew there was a good possibility of private high school, so I had the Coverdells for that. Now with the new tax law changes up to 10K/year of 529 money can be used for K-12 as well, so that advantage has been taken away. Outside of that I don't see the point of going ESA over 529. Lower contribution limit, hardly anyone offers them anymore, and you have to turn the money over to the child eventually if it's not used. I prefer having the money stay mine. You never know looking at your cute little baby, what kind of 19 year old you're going to end up with.

Plus, my state gives a nice perk for contributing to the 529, which is a 50% tax credit on the first $1000 contributed. They're giving me $500/year. Not sure how I could possibly be losing money there putting $2400/year in.

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Re: Long Term FAFSA/College Strategy

Post by markcoop » Thu Sep 19, 2019 12:04 pm

cshell2 wrote:
Thu Sep 19, 2019 11:35 am
I would like to know what the advantage is of a Coverdell over a 529 and why you feel a 529 costs money, but a Coverdell does not?
Coverdells and 529s are simply containers that hold investments. It is possible that they hold the exact same investments. As different products, they each have their own set of rules. Although in this case they do have mostly similar rules. To me, the biggest advantage of a Coverdell is most likely lower fees. Some 529s, however, have grown in size and may actually offer as low if not lower fees. Another advantage of a Coverdell is the ability not to be locked into a predetermined set of investments like 529 plans do.

Having said all that, a state tax break would almost always sway me toward a 529 unless fees wiped out that advantage.
Mark

chipperd
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Re: Long Term FAFSA/College Strategy

Post by chipperd » Thu Sep 19, 2019 2:39 pm

markcoop wrote:
Thu Sep 19, 2019 9:16 am
chipperd wrote:
Thu Sep 19, 2019 7:08 am
3) At some point along the line, if a CSS profile school is on the horizon, maybe when your oldest is in middle school, either mortgage your home to the hilt, or sell it and rent. Most CSS profile schools will assume a certain percentage of your home's equity to be used to pay for school each year, some as high as 5% of your home equity per kid, per year.( IE: 3 kids=12 years of school, that's up to 60% of your home's equity that gets thrown back to the CSS profile school).
Some schools don't use home equity at all and therefore one would do the exact opposite strategy (pay down the mortgage as much as possible).
Sure, paying down mortgage is one possible way to keep $ away from schools, but not the only way and may be good one year and not the next. You will have no idea which schools will count home equity in their secret sauce CSS profile formula, as they have the right to change it whenever they like. Here is the most up to date list linked in this article that I could find, but I think it's fairly old : http://www.thecollegesolution.com/will- ... d-chances/ . This woman makes her living trying to figure this out and from this list, dated 2017, she could only identify 115 of the over 200 CSS profile schools regarding how they treat home equity, and of those, only 7 didn't use home equity that year for certain.
So, even if you hear CSS profile U "only" counted 1.2x parental income for home equity, or none at all, the next year that your kid applies could be totally different and you would have no idea. So, paying down mortgage is risky if you are looking to shelter funds from a school at application time.

petulant
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Re: Long Term FAFSA/College Strategy

Post by petulant » Sat Sep 21, 2019 4:14 pm

Another follow-up: there are generally education tax benefits that require paying actual tuition and fees (AOTC, LLC). It is my understanding that expenses paid with distributions from a 529 plan would not qualify for the tax benefits from AOTC and LLC. Anybody paying expenses can try to coordinate these tools to use both 529 distributions and tax credits, but just planning to use a 529 for everything may leave money on the table. Another point in favor of leaving some margin to cashflow at least part of the tuition and fees.

sd323232
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Re: Long Term FAFSA/College Strategy

Post by sd323232 » Sat Sep 21, 2019 4:59 pm

justsomeguy2018 wrote:
Wed Sep 18, 2019 6:57 pm
Thinking way ahead here...

Are there any particular strategies for planning for college 19-years away?

Specifically, is there anything to be aware of in terms of where to allocate excess cash flow (e.g. 529, brokerage account, home principal payoff, etc.)?


Current situation (obviously may be drastically different over the course of the next 19 years):

Current HH Income: $250k
Current Retirement Accounts/HSAs: Maxing Out each year
Current Assets: $470k (~62% in retirement accounts/home equity)
Retirement Timeline: Minimum 22 more years, maximum 32 more years

My thinking is to start out with putting ~$400/mo into a 529 plan, but just wanted to see if there were any other advisable suggestions, particularly anything that may impact FAFSA if needed later down the road (no idea if we would even qualify), like e.g. having the 529 in grandparent's name
Put your kid into foster home? Kid will get some benefits being orphan.


Just kidding, with your income, you will be fine !

EnjoyIt
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Re: Long Term FAFSA/College Strategy

Post by EnjoyIt » Sat Sep 21, 2019 5:08 pm

We realize that FAFSA or any kind of aid is very unlikely for us so our plan is two fold:
1) We pre funded the 529 at birth with the goal/hope that it will cover a good portion of education. We do not expect it to cover everything.
2) Set ourselves on a path to early financial independence so that we can easily cashflow the rest.

When the time comes I will evaluate the laws to see if I can do anything to capitalize on those laws (unlikely but I will look.)
I hope this plan works out for us.

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CyclingDuo
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Re: Long Term FAFSA/College Strategy

Post by CyclingDuo » Sun Sep 22, 2019 6:55 am

justsomeguy2018 wrote:
Wed Sep 18, 2019 6:57 pm
Thinking way ahead here...

Are there any particular strategies for planning for college 19-years away?

Specifically, is there anything to be aware of in terms of where to allocate excess cash flow (e.g. 529, brokerage account, home principal payoff, etc.)?


Current situation (obviously may be drastically different over the course of the next 19 years):

Current HH Income: $250k
Current Retirement Accounts/HSAs: Maxing Out each year
Current Assets: $470k (~62% in retirement accounts/home equity)
Retirement Timeline: Minimum 22 more years, maximum 32 more years

My thinking is to start out with putting ~$400/mo into a 529 plan, but just wanted to see if there were any other advisable suggestions, particularly anything that may impact FAFSA if needed later down the road (no idea if we would even qualify), like e.g. having the 529 in grandparent's name
The best plan - in our opinion and experience - is simply to save enough between now and then to pay for it all so your kids do not have to rely on any type of aid, and they graduate debt free. Even if you cash flow a portion of the tuition/room/board to add to the savings that have built up over the next 19 years - you'll be fine at your HH income level. No need to worry about impacting FAFSA as you should be able to fund their education from savings and cash flow without any difficulties. At your HH income level, you won't qualify for aid based on the FAFSA - and that's a good thing! :beer

You are maxing out your 401k's which is a good 15% of your gross income if you are both doing $19K each year. Keep on that path of at least 15-17% per year going to retirement funds, and set aside college education funds as well. You can use 529, UTMA/UGMA, taxable, etc... to build for college educations. We chose to front load our children's education funds which included our contributions as well as asking all grandparents that instead of giving toys/presents to our kids when they were little, to please contribute to the college education fund instead. That worked for one set of grandparents, not the other. Regardless, the strategy helped boost the savings we put in during the first 5 years to front load the accounts more than we were able to add on our own. We also planned on the kids going to graduate school for advanced degrees in our formula of savings, so kept adding all the way until they started college and even in college as we knew graduate school was down the road.

Plug your numbers in here and compare private vs. in-state and out-of-state public universities to get an idea of the goal you are shooting for 19-22+ years from now to fund:

https://www.savingforcollege.com/calcul ... calculator

You'll need about $300K-$350K for a private college 19 years from now, and probably $160-175K for in-state 4 year degree. What about graduate school? Plug in your numbers to help set a path of how much to save.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

Small Savanna
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Re: Long Term FAFSA/College Strategy

Post by Small Savanna » Sun Sep 22, 2019 7:33 am

Funds for college can come from multiple sources:
- money you save in a 529 or elsewhere
- money your children save from part time/summer work
- money out of your paycheck while they are in college
- money they earn while in college
- loans you take
- loans they take
- money from grandparents
- scholarships.

Our strategy was to save about half of what we anticipated they would need in 529s and get the rest from all the other sources listed, with loans as a last resort. That worked OK. Older daughter went in-state, and with the 529 and her part-time work, the out of pocket expenses were easily affordable. Younger daughter went to a private college. They gave her a $10K/year discount (aka scholarship) but it was still more expensive than in-state. We used up her 529 in the first three years, so the out-of-pocket part was substantial. But both are now on their own and debt free, which is a great place to start.

chipperd
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Re: Long Term FAFSA/College Strategy

Post by chipperd » Sun Sep 22, 2019 2:47 pm

markcoop wrote:
Thu Sep 19, 2019 9:16 am
chipperd wrote:
Thu Sep 19, 2019 7:08 am
3) At some point along the line, if a CSS profile school is on the horizon, maybe when your oldest is in middle school, either mortgage your home to the hilt, or sell it and rent. Most CSS profile schools will assume a certain percentage of your home's equity to be used to pay for school each year, some as high as 5% of your home equity per kid, per year.( IE: 3 kids=12 years of school, that's up to 60% of your home's equity that gets thrown back to the CSS profile school).
Some schools don't use home equity at all and therefore one would do the exact opposite strategy (pay down the mortgage as much as possible).
True, but most (and that's a vast majority, something upwards of 90%) of the CSS profile schools do. The FAFSA only schools don't use home equity, so if your offspring is attending one of those, then yup, pay down that home.

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scubadiver
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Re: Long Term FAFSA/College Strategy

Post by scubadiver » Sun Sep 22, 2019 6:53 pm

Given your income and the tax advantages of a 529 plan, why are you only contributing $400 per month? Aim for $1000 per month and forget about trying to game a system meant to help the poor.

chipperd
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Re: Long Term FAFSA/College Strategy

Post by chipperd » Mon Sep 23, 2019 4:31 am

scubadiver wrote:
Sun Sep 22, 2019 6:53 pm
Given your income and the tax advantages of a 529 plan, why are you only contributing $400 per month? Aim for $1000 per month and forget about trying to game a system meant to help the poor.
"Game the system". I've heard that phrase before but could you clarify? It sounds derogatory.
Paying less for an item or service within the rules is how capitalism is designed to work. A post high school education is a service, no different than hiring a plumber or carpenter. It pays to shop around and set yourself up to get the best possible service for the lowest price available.
Colleges and Universities aim to increase their standing in the rankings among their peers. It's a way for them to be competitive for the next top student. They attract these students by making their school as affordable as they can relative to what each school sees as their competition. A school;s endowment is set up to allow admissions and financial aid offices to attract these desirable students with financial awards. It's the schools that have decided to weight their decision on what makes their school "affordable",, in large part, on family income. Hence, if you child has the academic numbers the school is looking for, the lower the income, the more funds your student will attract. Lets face it, if your son/daughter doesn't have the grades but your family has a low income a higher echelon school isn't going to offer you much, if anything, to attend. Poor isn't the only criteria needed.
No one is suggesting, least of all me, that one become "poor" to get funds from a schools endowment. With the median family income in the U.S. for a family of 4 at $61k/year, I am assuming you mean poor is somewhere pretty far south of that number. Private colleges and Universities offer financial aid to students that they want to attend their schools to kids who come from families making 6 figures. The financial aid system isn't used just to help the "poor" student, it's also used for a college or university's own self interest as well. Heck, it's their money, they are aren't running altruistic organizations here, they are running a business.
I think the system needs a lot of refinement, but hate the game not the player.

EnjoyIt
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Re: Long Term FAFSA/College Strategy

Post by EnjoyIt » Mon Sep 23, 2019 8:35 am

scubadiver wrote:
Sun Sep 22, 2019 6:53 pm
Given your income and the tax advantages of a 529 plan, why are you only contributing $400 per month? Aim for $1000 per month and forget about trying to game a system meant to help the poor.
chipperd wrote:
Mon Sep 23, 2019 4:31 am
"Game the system". I've heard that phrase before but could you clarify? It sounds derogatory.
Paying less for an item or service within the rules is how capitalism is designed to work. A post high school education is a service, no different than hiring a plumber or carpenter. It pays to shop around and set yourself up to get the best possible service for the lowest price available.
Colleges and Universities aim to increase their standing in the rankings among their peers. It's a way for them to be competitive for the next top student. They attract these students by making their school as affordable as they can relative to what each school sees as their competition. A school;s endowment is set up to allow admissions and financial aid offices to attract these desirable students with financial awards. It's the schools that have decided to weight their decision on what makes their school "affordable",, in large part, on family income. Hence, if you child has the academic numbers the school is looking for, the lower the income, the more funds your student will attract. Lets face it, if your son/daughter doesn't have the grades but your family has a low income a higher echelon school isn't going to offer you much, if anything, to attend. Poor isn't the only criteria needed.
No one is suggesting, least of all me, that one become "poor" to get funds from a schools endowment. With the median family income in the U.S. for a family of 4 at $61k/year, I am assuming you mean poor is somewhere pretty far south of that number. Private colleges and Universities offer financial aid to students that they want to attend their schools to kids who come from families making 6 figures. The financial aid system isn't used just to help the "poor" student, it's also used for a college or university's own self interest as well. Heck, it's their money, they are aren't running altruistic organizations here, they are running a business.
I think the system needs a lot of refinement, but hate the game not the player.
I get so disgusted when someone comes around with a holier than thou attitude about understanding the rules of a game and doing what is best for their family within the confines of the law.

Our higher education system has some serious faults. I hope many of those get cleared up when my youngins go to school but I doubt it.

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