Need ideas on what to do with deferred income to reduce EFC for college

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Calico
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Need ideas on what to do with deferred income to reduce EFC for college

Post by Calico » Sun Jan 12, 2020 12:02 am

My daughter is a high school sophomore and will most likely go to college in 2.5 years. This is the year where my finances matter for financial aid (spring of sophomore year to fall of junior year from what I've read). So I've been reading and researching ways I can best minimize my expected family contribution.

When my dad died, a trust was set up for me, my brother, and my mother. My mom controls it. She allocates $15k a year each to me and my brother. That money counts "against me" when it comes to my daughter getting financial aid. It's part of my income. Playing around with a FAFSA calculator, I discovered that eliminating that income reduces my EFC from $20,800 to $14,200.

So I am seriously thinking of finding a way to defer that trust money for a few years. I can live without it, although my ability to save non-retirement money will pretty much be shot (it won't impact my retirement savings). But I would like the money set aside in some fashion so I could collect it later. I'd probably end up using it to pay off student loans my daughter built up (because without the money, my ability to pay for college out of pocket is greatly reduced and so her educational fees would most be all be paid by loans).

First, I am pretty convinced this is a good idea, but am I thinking clearly? Or am I forgetting something? And if it is a sound idea, what are some ways it could be safely set aside? While I trust my mom (and my brother... if something happens to mom), I always think it's wise to have things in writing or very clear to avoid misunderstandings and family disharmony. The only idea I can come up with is mom putting it in another account in her name (with me as beneficiary) and when college is over, she could transfer the money to me or just use it to pay off the student loans I am sure my daughter will have.

Now, if I could also think of a way to prevent my boss from giving me a raise. He seems to give me one every year and every year it gets bigger. Last year it was 5%. I might ask him, in lieu of money, to give me more vacation days. Those are worth cash if I leave so I don't lose anything. Or maybe ask if he will instead, increase the company contribution to my 401k since that doesn't appear as income and retirement accounts don't count against you on the FAFSA.

123
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by 123 » Sun Jan 12, 2020 12:21 am

Some people who qualify for financial assistance from colleges as students only receive loans that have to be paid back.
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Iorek
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by Iorek » Sun Jan 12, 2020 12:43 am

This seems like a bad idea from multiple angles

Pdxnative
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by Pdxnative » Sun Jan 12, 2020 1:40 am

You’re correct that this is the first year that will affect need based aid. But I think using the FAFSA is misleading. Most of the generous schools use the CSS profile and/or their own institutional methodology to calculate need. So the FAFSA results aren’t going to tell you much except whether you’re eligible for a pell grant or subsidized loan.

I’d suggest going to the net price calculators of a few schools to see if this is even going to be relevant for you. Start with Princeton. Most generous for most families. There are maybe 10 schools as generous—Harvard, Yale, MIT, Stanford, etc. Admit rates in single digits. Then try Duke. Not nearly as generous but still one of the 20-30 most generous. All of those also pretty hard to get admitted. Then try a few random private schools and maybe Michigan or UNC. Pretty soon you’ll see the landscape and you can decide if this is worth pursuing.

Keep in mind if your daughter has the stats for those generous schools, she’ll likely get merit aid from some schools and FAFSA doesn’t matter for that.

livesoft
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by livesoft » Sun Jan 12, 2020 2:19 am

Clearly that trust money should be used for college and should affect your EFC. You shouldn't worry at all about this subject.
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livesoft
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by livesoft » Sun Jan 12, 2020 2:21 am

Pdxnative wrote:
Sun Jan 12, 2020 1:40 am
Keep in mind if your daughter has the stats for those generous schools, she’ll likely get merit aid from some schools and FAFSA doesn’t matter for that.
I read at bogleheads.org that those places (Princeton, Stanford, MIT) don't give out merit aid because everyone admitted is an academic rock star.
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Pdxnative
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by Pdxnative » Sun Jan 12, 2020 2:26 am

livesoft wrote:
Sun Jan 12, 2020 2:21 am
Pdxnative wrote:
Sun Jan 12, 2020 1:40 am
Keep in mind if your daughter has the stats for those generous schools, she’ll likely get merit aid from some schools and FAFSA doesn’t matter for that.
I read at bogleheads.org that those places (Princeton, Stanford, MIT) don't give out merit aid because everyone admitted is an academic rock star.
Ha- sorry, I should have written that she’ll get merit aid at some OTHER schools, those that provide it. Correct, not at Ivies, etc.

rossington
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by rossington » Sun Jan 12, 2020 2:46 am

Make sure she goes to an in state university. Do not go out of state.
No private in or out of state state college/university. This will help keep your costs as low as possible.
The only idea I can come up with is mom putting it in another account in her name (with me as beneficiary) and when college is over, she could transfer the money to me or just use it to pay off the student loans I am sure my daughter will have.
Yes, have Mom to set up a separate account (ie: VMMXX, CD's, VBTLX, whatever) for your 15k each year so it is not income to you. You are to be the beneficiary/ POD recipient (as a precaution).

Take any raise you can get....you're not getting any younger.

And keep your daughter debt free.
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basspond
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by basspond » Sun Jan 12, 2020 6:54 am

Your question is similar to many others who want to become indigent so they receive Medicaid. We tried the FASFA game and it was a useless exercise. We ran projections and to receive any substantial financial aid our income had to be below the poverty level. We could only apply for loans. One child was smart enough to receive some merit scholarships the first year and I’m sure she didn’t get as many because of our FASFA score.

On top of that, the colleges they went to had an equalization fee that was used to fund students who were financially “challenged”.

Topic Author
Calico
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by Calico » Sun Jan 12, 2020 8:28 am

Sigh, thanks for the input.

It's just so frustrating. I'm in this "too rich for much aid" but "too poor to just out and out pay for college" territory. It's a weird sort of middle ground.

I read information (I have a book and read article online) and they suggest you do these things, lower income, lower expenses, etc, etc. and I just can't seem to do any of them. I come up with plans like this one and based on the responses, I suppose it's a harebrained idea. At least I am able to run them by people before I implement them. That's why I love this forum so much. When I try to talk anything about money and financial planning with anyone else I know, they seem to think I know what I am talking about and just agree with everything I say when I am really looking for different angles because I know I am NOT any kind of expert. I am just good at saving money.

My other harebrained idea was basically to move out of my high cost of living area, telecommute, and have more money that way (there were holes in that one, although only one responder brought up the big problem with that, the equity from selling my house would no longer be sheltered.

Just to comment on a few things, the net price calculators also asks about income. Plugging in the numbers, reducing income there helps too. And a lot ask for your EFC number if you have it.

As for state school vs private, it's a bit of a wash (I've been doing that). Plugging the numbers in for nearby private schools, the cost is about the same as state schools because many of those private schools consider my income to put me in need based territory. One local college was going to give my daughter $40k in need based aid based on income alone. The total cost at private schools is higher that state in some cases, but lower in others. Although one state school is the clear winner in cost, Virginia Tech (if you read this, thanks Klangfool for telling me how generous they are). Although I still have to pay about $20k a year for that school, if I get the aid they indicate in their net price calculator. That's a good deal because I have $25k in a 529 and I can pay $15k a year. So that's basically only $10k or so in loans over four years. Assuming the numbers are right ad assuming their numbers weren't based on loans.

But for most other schools, I would have to pay more and it will mean loans, even with the 529. It's just expensive where I live. I wish they would take into account cost of living. I crunched the numbers and unless I reduce my retirement savings, I max out at that $15k a year being what I can really afford to pay out for college. There will have to be some loans or my daughter will have to get accepted by the local university (although it doesn't quite offer the major she's looking for--applied math. They just offer general math).
Last edited by Calico on Sun Jan 12, 2020 8:44 am, edited 1 time in total.

SchruteB&B
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by SchruteB&B » Sun Jan 12, 2020 8:42 am

Calico wrote:
Sun Jan 12, 2020 8:28 am
Sigh, thanks for the input.

It's just so frustrating. I'm in this "too rich for much aid" but "too poor to just out and out pay for college" territory. It's a weird sort of middle ground.

I read information (I have a book and read article online) and they suggest you do these things, lower income, lower expenses, etc, etc. and I just can't seem to do any of them. I come up with plans like this one and based on the responses, I suppose it's a harebrained idea. At least I am able to run them by people before I implement them. That's why I love this forum so much. When I try to talk anything about money and financial planning with anyone else I know, they seem to think I know what I am talking about when I am really looking for different angles.

My other harebrained idea was basically to move out of my high cost of living area, telecommute, and have more money that way (there were holes in that one, although only one responder brought up the big problem with that, the equity from selling my house would no longer be sheltered.

Just to comment on a few things, the net price calculators also asks about income. Plugging in the numbers, reducing income there helps too. And a lot ask for your EFC number if you have it.

As for state school vs private, it's a bit of a wash (I've been doing that). Plugging the numbers in for nearby private schools, the cost is about the same as state schools because many of those private schools consider my income to put me in need based territory. One local college was going to give my daughter $40k in need based aid based on income alone. The total cost at private schools is higher that state in some cases, but lower in others. Although one state school is the clear winner in cost, Virginia Tech (if you read this, thanks Klangfool for telling me how generous they are). Although I still have to pay about $20k a year for that school. Because of how expensive it is to live where I love, I can't pay that much. I crunched the numbers and unless I reduce my retirement savings, I max out at that $15k a year being what I can really afford. There will have to be some loans or my daughter will have to get accepted by the local university (although it doesn't quite offer the major she's looking for--applied math. They just offer general math).
I for one don’t think there would be anything wrong with your daughter taking loans of $5k per year. She can get $27k in loans from the government (for 4 years total) that are her loans alone, not cosigned. She could also work during the summers to contribute. Seems like a reasonable amount of debt for a good school with a good major.

Topic Author
Calico
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by Calico » Sun Jan 12, 2020 8:48 am

SchruteB&B wrote:
Sun Jan 12, 2020 8:42 am
Calico wrote:
Sun Jan 12, 2020 8:28 am
Sigh, thanks for the input.

It's just so frustrating. I'm in this "too rich for much aid" but "too poor to just out and out pay for college" territory. It's a weird sort of middle ground.

I read information (I have a book and read article online) and they suggest you do these things, lower income, lower expenses, etc, etc. and I just can't seem to do any of them. I come up with plans like this one and based on the responses, I suppose it's a harebrained idea. At least I am able to run them by people before I implement them. That's why I love this forum so much. When I try to talk anything about money and financial planning with anyone else I know, they seem to think I know what I am talking about when I am really looking for different angles.

My other harebrained idea was basically to move out of my high cost of living area, telecommute, and have more money that way (there were holes in that one, although only one responder brought up the big problem with that, the equity from selling my house would no longer be sheltered.

Just to comment on a few things, the net price calculators also asks about income. Plugging in the numbers, reducing income there helps too. And a lot ask for your EFC number if you have it.

As for state school vs private, it's a bit of a wash (I've been doing that). Plugging the numbers in for nearby private schools, the cost is about the same as state schools because many of those private schools consider my income to put me in need based territory. One local college was going to give my daughter $40k in need based aid based on income alone. The total cost at private schools is higher that state in some cases, but lower in others. Although one state school is the clear winner in cost, Virginia Tech (if you read this, thanks Klangfool for telling me how generous they are). Although I still have to pay about $20k a year for that school. Because of how expensive it is to live where I love, I can't pay that much. I crunched the numbers and unless I reduce my retirement savings, I max out at that $15k a year being what I can really afford. There will have to be some loans or my daughter will have to get accepted by the local university (although it doesn't quite offer the major she's looking for--applied math. They just offer general math).
I for one don’t think there would be anything wrong with your daughter taking loans of $5k per year. She can get $27k in loans from the government (for 4 years total) that are her loans alone, not cosigned. She could also work during the summers to contribute. Seems like a reasonable amount of debt for a good school with a good major.
I added some more detail to my post that you quoted. It wouldn't even be $27k, it would be less. But I am assuming when the school said aid, it's grants and scholarships. Some of them, in the net calculators, say loans. And I am assuming that state school I mentioned will accept her. But I think it will, Their acceptance rate is 70% and my daughter falls well above their average student profile.

I am probably just over thinking things. Nervous first time to college parent combined with obsession about my budget and savings will do that to a person. I probably need a 12 step program. haha

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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by livesoft » Sun Jan 12, 2020 9:14 am

Calico wrote:
Sun Jan 12, 2020 8:28 am
I'm in this "too rich for much aid" but "too poor to just out and out pay for college" territory.
I think you and your daughter can afford college without much trouble. Your daughter could easily get admitted to the University of Virginia, too.

I don't see that you have anything to worry about at all.
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Topic Author
Calico
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by Calico » Sun Jan 12, 2020 10:10 am

livesoft wrote:
Sun Jan 12, 2020 9:14 am
Calico wrote:
Sun Jan 12, 2020 8:28 am
I'm in this "too rich for much aid" but "too poor to just out and out pay for college" territory.
I think you and your daughter can afford college without much trouble. Your daughter could easily get admitted to the University of Virginia, too.

I don't see that you have anything to worry about at all.
She will most likely apply to UVA but we aren't counting on getting in. It's a reach school. They have a really low acceptance rate and while my daughter is getting A's (one B) and doing AP and honors, there are kids doing a whole lot more and that don't get in.

livesoft
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by livesoft » Sun Jan 12, 2020 10:11 am

Calico wrote:
Sun Jan 12, 2020 10:10 am
She will most likely apply to UVA but we aren't counting on getting in. It's a reach school. They have a really low acceptance rate and while my daughter is getting A's (one B) and doing AP and honors, there are kids doing a whole lot more and that don't get in.
I have a few relatives who graduated from UVa. If your daughter wants to go there, then I think she will get in. Think positive!

Also I would ignore acceptance rates because they are padded.
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by stoptothink » Sun Jan 12, 2020 10:20 am

Calico wrote:
Sun Jan 12, 2020 8:28 am
Sigh, thanks for the input.

It's just so frustrating. I'm in this "too rich for much aid" but "too poor to just out and out pay for college" territory. It's a weird sort of middle ground.

I read information (I have a book and read article online) and they suggest you do these things, lower income, lower expenses, etc, etc. and I just can't seem to do any of them. I come up with plans like this one and based on the responses, I suppose it's a harebrained idea. At least I am able to run them by people before I implement them. That's why I love this forum so much. When I try to talk anything about money and financial planning with anyone else I know, they seem to think I know what I am talking about and just agree with everything I say when I am really looking for different angles because I know I am NOT any kind of expert. I am just good at saving money.

My other harebrained idea was basically to move out of my high cost of living area, telecommute, and have more money that way (there were holes in that one, although only one responder brought up the big problem with that, the equity from selling my house would no longer be sheltered.

Just to comment on a few things, the net price calculators also asks about income. Plugging in the numbers, reducing income there helps too. And a lot ask for your EFC number if you have it.

As for state school vs private, it's a bit of a wash (I've been doing that). Plugging the numbers in for nearby private schools, the cost is about the same as state schools because many of those private schools consider my income to put me in need based territory. One local college was going to give my daughter $40k in need based aid based on income alone. The total cost at private schools is higher that state in some cases, but lower in others. Although one state school is the clear winner in cost, Virginia Tech (if you read this, thanks Klangfool for telling me how generous they are). Although I still have to pay about $20k a year for that school, if I get the aid they indicate in their net price calculator. That's a good deal because I have $25k in a 529 and I can pay $15k a year. So that's basically only $10k or so in loans over four years. Assuming the numbers are right ad assuming their numbers weren't based on loans.

But for most other schools, I would have to pay more and it will mean loans, even with the 529. It's just expensive where I live. I wish they would take into account cost of living. I crunched the numbers and unless I reduce my retirement savings, I max out at that $15k a year being what I can really afford to pay out for college. There will have to be some loans or my daughter will have to get accepted by the local university (although it doesn't quite offer the major she's looking for--applied math. They just offer general math).
Step back for a second and read this post as if it wasn't written by you. Isn't it ridiculous that people are literally flipping their lives upside down in attempt to get a "discount" on their children's college education? This is not a reflection on you (I don't blame you at all for trying to find the cheapest way), but this is exactly why we'll pay for local (cheap) U and if kids want to go elsewhere that is on them. Also, we are fortunate that universities in our area are considerably cheaper than your options.

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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by sailaway » Sun Jan 12, 2020 10:29 am

livesoft wrote:
Sun Jan 12, 2020 9:14 am
Calico wrote:
Sun Jan 12, 2020 8:28 am
I'm in this "too rich for much aid" but "too poor to just out and out pay for college" territory.
I think you and your daughter can afford college without much trouble. Your daughter could easily get admitted to the University of Virginia, too.

I don't see that you have anything to worry about at all.
OP is trying to eliminate $15k of income in order to reduce EFC by $6k. This isn't a question of too poor to pay for college. It is a question of not wanting to.

Regattamom
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by Regattamom » Sun Jan 12, 2020 1:13 pm

I don't think OP is trying to eliminate the income, just defer it. I understand the math, but I think the OP is creating other issues by jumping through all these hoops.

OP - Take the raise from your boss, accept the money from mom and see what schools offer your daughter. It will all be fine in the end even if your daughter has to take on some loans.

NotWhoYouThink
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by NotWhoYouThink » Sun Jan 12, 2020 1:45 pm

Your EFC is not important, what is important is the net cost to you of your daughter's college. Even if your EFC were $0, you would still have to pay if the college she attends does not offer financial aid.

Look up what colleges are likely for her, look at their financial aid availability (grants, not loans), consider whether she might be eligible for merit aid at mid-tier colleges and whether she is interested in that.

Most likely the best way for you to pay is to keep getting the $15K/year from the trust, and skipping your retirement plan contributions while you are paying for your school.

Skipping raises is without doubt a terrible idea. Your raise affects your salary forever, and the increase in EFC is less than the increase in income, so there is absolutely no reason to avoid it.

Remember that the general goal is to have the most money left over after spending, not get the most financial aid.

Your biggest decision is how much you are willing to spend on college, and you need to be the adult and decide that before your daughter applies, don't wait until she applies and then tell her the rules.

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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by teen persuasion » Sun Jan 12, 2020 2:45 pm

Have I got this right: you have $25k in a 529, plus $15k per year to put towards college expenses? That's $25k + 4($15k) = $85k.

Don't forget you should be eligible for the AOTC, $2500 per year, 4 years max, for another $10k. Only 40% is refundable, but as long as you owe federal taxes, you can redirect withholdings equal to the other 60% to cover college expenses.

In my experience, the first aid given out by colleges are loans, so yes, any financial aid package already includes loans. It may also include work study - this can be tricky, because your student has to earn it before it's available to pay college expenses (that is, it's not available when the tuition bill is due before the semester begins). Some schools are great about WS jobs, passing out assignments at the beginning of the semester. Others leave finding/landing a WS job up to the student. Don't find one, no money. Some students deliberately do NOT check the "I want work study" box on the FAFSA - the thinking goes that then it does not take up a portion of my financial aid package, and I will pursue my own non-WS jobs on campus (that are not capped like WS is, to a few $k at most) for ADDITIONAL $.

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Calico
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by Calico » Sun Jan 12, 2020 4:22 pm

Thanks for the advice. I am just trying to not pay any more than I have to. I've made mistakes in the past surrounding finances (had a planner for a while who talked me into annuities, blindly assumed buying a house is better than renting... although I lucked out on that one, etc). I just don't want to make mistakes that I will regret later. So I am looking at everything and from every angle and asking about the unclear things/unsure things.

The issue I am running into is if colleges lower costs with "aid" that could already include the loans to $20k (roughly) and I can only afford $15k, what do I do? Get a home equity line of credit to pay the rest? Stop retirement savings? (someone suggested that higher up and that would free up money) Get a second job? (Something I am considering because once she moves to college, I am essentially an empty nester with no family nearby, what else am I going to do with my time), etc.

My daughter will work too most likely. I worked in college. But sometimes college jobs don't work. I remember I had a boss in college that wanted met o start skipping classes to work an earlier shift. Luckily, I didn't rely on that job, my parents had my back because I had to quit. So I am a bit leery about her relying on work. It would be nice for her to get it though if she can.

To the last poster, you understood correctly. There is $25k in a 529 and I can afford $15k a year (it will be tight for me, but I can spare it). I didn't know about the tax credit. Thanks for the tip.

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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by niceguy7376 » Sun Jan 12, 2020 4:34 pm

Calico wrote:
Sun Jan 12, 2020 12:02 am
When my dad died, a trust was set up for me, my brother, and my mother. My mom controls it. She allocates $15k a year each to me and my brother. That money counts "against me" when it comes to my daughter getting financial aid. It's part of my income. Playing around with a FAFSA calculator, I discovered that eliminating that income reduces my EFC from $20,800 to $14,200. So I am seriously thinking of finding a way to defer that trust money for a few years.
I am trying to understand the below:
If Mom opens a new bank account and deposits the 15K into it, somehow the OP doesnt get a W2 or whatever form that shows it as income?
If so, is the trust doing some grey area thing or is it the mom as the trust owner that is doing the grey thing?

How come just diverting the deposit into a different account make it non income?

---------
So if OP doesnt do anything, then OP gets 15k from trust and need to pay around 6.6k ($20,800 - $14,200) and still pocket 15-6.6 = 8.4k?

Regattamom
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by Regattamom » Sun Jan 12, 2020 5:32 pm

Calico wrote:
Sun Jan 12, 2020 4:22 pm

The issue I am running into is if colleges lower costs with "aid" that could already include the loans to $20k (roughly) and I can only afford $15k, what do I do? Get a home equity line of credit to pay the rest? Stop retirement savings? (someone suggested that higher up and that would free up money) Get a second job? (Something I am considering because once she moves to college, I am essentially an empty nester with no family nearby, what else am I going to do with my time), etc.

To the last poster, you understood correctly. There is $25k in a 529 and I can afford $15k a year (it will be tight for me, but I can spare it). I didn't know about the tax credit. Thanks for the tip.
But can't you afford more than $15k? You currently have $25k in a 529. And you have at least two more years of high school where you can take the $15k from the trust and add to that amount. That gives you $55k. Add four years of receivingmoney from the trust while she's in college and that's another $60k. Total now is $115k.

Add another $5k for loans or for her working for each year in college and you now have $135k for college. Divide by 4 and you have over $33,000 per year for college.

Topic Author
Calico
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Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by Calico » Sun Jan 12, 2020 5:59 pm

Regattamom wrote:
Sun Jan 12, 2020 5:32 pm
Calico wrote:
Sun Jan 12, 2020 4:22 pm

The issue I am running into is if colleges lower costs with "aid" that could already include the loans to $20k (roughly) and I can only afford $15k, what do I do? Get a home equity line of credit to pay the rest? Stop retirement savings? (someone suggested that higher up and that would free up money) Get a second job? (Something I am considering because once she moves to college, I am essentially an empty nester with no family nearby, what else am I going to do with my time), etc.

To the last poster, you understood correctly. There is $25k in a 529 and I can afford $15k a year (it will be tight for me, but I can spare it). I didn't know about the tax credit. Thanks for the tip.
But can't you afford more than $15k? You currently have $25k in a 529. And you have at least two more years of high school where you can take the $15k from the trust and add to that amount. That gives you $55k. Add four years of receivingmoney from the trust while she's in college and that's another $60k. Total now is $115k.

Add another $5k for loans or for her working for each year in college and you now have $135k for college. Divide by 4 and you have over $33,000 per year for college.
The $15k a year is what I save. Currently, $6k of that a year goes into a Roth IRA, $1200 goes into the 529, the rest goes into regular savings (I am trying to have half a year's salary saved up. I sometimes spend money out of that account so while it goes up, it goes up slowly). So yes, I could divert all of that to the 529, but I thought it would be better to put money into the Roth earlier rather than later and build up that nest egg since I won't be adding to it for a few years.

But yes, putting it into a 529 instead would probably effectively do the same as deferring it. That's a good idea (and so simple that I am mad at myself for not thinking of it). But I need to think if I want to stop the Roth this early. Of course, I would have had to do that anyway with my original idea.

What kills me is a few years ago when I first came here, I was told NOT to load up a 529 because of aid. Add to it, but don't worry about it. I didn't since I wasn't maxing out my retirement savings then (or now). I just can't max it out and have enough to live off of. I just put in the most I can.

Another thought from my other thread. I hate living where I do. It's high cost of living, I live far from family, it's a transient area so friends never stick around long... I could do the HELOC for paying for school and then sell the house and move back home after my daughter gets out of school. Pay off the loan with sale of house proceeds. I could buy a condo for cash easily back home with the equity.
Last edited by Calico on Sun Jan 12, 2020 6:17 pm, edited 1 time in total.

Topic Author
Calico
Posts: 457
Joined: Thu Jan 01, 2015 5:45 pm

Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by Calico » Sun Jan 12, 2020 6:17 pm

niceguy7376 wrote:
Sun Jan 12, 2020 4:34 pm
Calico wrote:
Sun Jan 12, 2020 12:02 am
When my dad died, a trust was set up for me, my brother, and my mother. My mom controls it. She allocates $15k a year each to me and my brother. That money counts "against me" when it comes to my daughter getting financial aid. It's part of my income. Playing around with a FAFSA calculator, I discovered that eliminating that income reduces my EFC from $20,800 to $14,200. So I am seriously thinking of finding a way to defer that trust money for a few years.
I am trying to understand the below:
If Mom opens a new bank account and deposits the 15K into it, somehow the OP doesnt get a W2 or whatever form that shows it as income?
If so, is the trust doing some grey area thing or is it the mom as the trust owner that is doing the grey thing?

How come just diverting the deposit into a different account make it non income?

---------
So if OP doesnt do anything, then OP gets 15k from trust and need to pay around 6.6k ($20,800 - $14,200) and still pocket 15-6.6 = 8.4k?
My idea was I don't get the $15k a year now, but get it later, after four years, when I am no longer filing out the FAFSA. It would be deposited into an account in my mother's name instead. In 4 years, after my daughter graduates, I would get a lump sum of $60k or, more likely, have my mom use the money to pay off the student loans. So school would be about $6k a year cheaper overall.

But it seems moot anyway since others pointed out the student aid I would most likely get is loans. I thought the lower income would qualify her more for grants, scholarships, etc.

I really wish, somehow, these schools didn't just look at income and assets when determining how much they will charge a student. I look good on paper compared to most Americans. But I live in a high cost of living area so things don't stretch as far. When I mentioned moving to save money in another thread, that was shot down as foolish too.

I suppose my only real choice is to keep on doing what I am doing and hope for the best. But at least I gave it a lot of thought and ran it by others. Thanks for the help. :)

Regattamom
Posts: 259
Joined: Sat Jan 06, 2018 3:40 pm

Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by Regattamom » Sun Jan 12, 2020 7:28 pm

Calico wrote:
Sun Jan 12, 2020 5:59 pm
Regattamom wrote:
Sun Jan 12, 2020 5:32 pm
Calico wrote:
Sun Jan 12, 2020 4:22 pm

The issue I am running into is if colleges lower costs with "aid" that could already include the loans to $20k (roughly) and I can only afford $15k, what do I do? Get a home equity line of credit to pay the rest? Stop retirement savings? (someone suggested that higher up and that would free up money) Get a second job? (Something I am considering because once she moves to college, I am essentially an empty nester with no family nearby, what else am I going to do with my time), etc.

To the last poster, you understood correctly. There is $25k in a 529 and I can afford $15k a year (it will be tight for me, but I can spare it). I didn't know about the tax credit. Thanks for the tip.
But can't you afford more than $15k? You currently have $25k in a 529. And you have at least two more years of high school where you can take the $15k from the trust and add to that amount. That gives you $55k. Add four years of receivingmoney from the trust while she's in college and that's another $60k. Total now is $115k.

Add another $5k for loans or for her working for each year in college and you now have $135k for college. Divide by 4 and you have over $33,000 per year for college.
The $15k a year is what I save. Currently, $6k of that a year goes into a Roth IRA, $1200 goes into the 529, the rest goes into regular savings (I am trying to have half a year's salary saved up. I sometimes spend money out of that account so while it goes up, it goes up slowly). So yes, I could divert all of that to the 529, but I thought it would be better to put money into the Roth earlier rather than later and build up that nest egg since I won't be adding to it for a few years.

But yes, putting it into a 529 instead would probably effectively do the same as deferring it. That's a good idea (and so simple that I am mad at myself for not thinking of it). But I need to think if I want to stop the Roth this early. Of course, I would have had to do that anyway with my original idea.

What kills me is a few years ago when I first came here, I was told NOT to load up a 529 because of aid. Add to it, but don't worry about it. I didn't since I wasn't maxing out my retirement savings then (or now). I just can't max it out and have enough to live off of. I just put in the most I can.

Another thought from my other thread. I hate living where I do. It's high cost of living, I live far from family, it's a transient area so friends never stick around long... I could do the HELOC for paying for school and then sell the house and move back home after my daughter gets out of school. Pay off the loan with sale of house proceeds. I could buy a condo for cash easily back home with the equity.
Calico, my question now is:

Are you on track for retirement? Because if you aren't, you shouldn't be entertaining any of these ideas of how to pay for your daughter's college.

KlangFool
Posts: 16641
Joined: Sat Oct 11, 2008 12:35 pm

Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by KlangFool » Sun Jan 12, 2020 7:53 pm

OP,

IMHO,

1) Bad news. I do not think you will qualify for need-based financial aid.

2) Good news, Based on your daughter's academic result, she will get merit-based aid. Especially, if she gets into STEM. My household income is much higher than yours and it is not a problem to get merit-based aid. In fact, I did not fill out the FAFSA at all.

3) Sorry! I do not see where you have any problems.

A) 2.5K per year of AOTC tax credit.

B) X amount of money in 529

C) 15K per year from the trust.

D) Some merit-based scholarship

E) 5K to 6K per year of the subsidized loan in the worst case.

All this for about 30K per year of college education (tuition, room, and board). VTech is highly ranked nationally. I am not sure why you would go someplace else if you can get in.

By the way, the Vtech campus dining ranked the second-best nationally.

https://www.niche.com/colleges/search/b ... lege-food/

KlangFool

P.S.: For the AOTC tax credit, you need to pay at least 5K per year outside of the 529.

Topic Author
Calico
Posts: 457
Joined: Thu Jan 01, 2015 5:45 pm

Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by Calico » Sun Jan 12, 2020 7:57 pm

Regattamom wrote:
Sun Jan 12, 2020 7:28 pm


Calico, my question now is:

Are you on track for retirement? Because if you aren't, you shouldn't be entertaining any of these ideas of how to pay for your daughter's college.
I think I am. I won't be a millionaire upon retirement, but I will be okay. I currently save as much as I can, sort of. Technically, I should not be putting anything into a 529 according to conventional wisdom. But I still put $100 a month into it. I have to say, I am glad I did because it will help.

I max out my Roth, $6k a year and I put as much as I can in my 401k. Currently that's $12,200 a year for a total of $18k a year in retirement savings. I really can't take any more out of my paycheck or else I can't afford to live. Like I said, this is a high cost of living area and I make below average (household) for where I live. I am saving in an "emergency fund" (although I just consider it savings for anything that needs it--new roof, fix the car, lose my job and need money to live off of, etc). That savings isn't where I need it to be yet. And I put that $100 a month into the 529.

Really, I shouldn't be living where I do. But I am stuck here due to the divorce decree and but it's probably also best for my daughter to finish school here.

I've run the numbers, assuming 4% a year and I will have enough to live on in just my investments when I am 67. This includes not putting money in the Roth for four years, but leaving my 401k alone. It's also not including Social Security. If I get SS, I'd have fun money too if I want to travel or something. I really don't hope to ever retire though. I want some kind of job as long as I can have one. Even if it's Walmart greeter or something like that. I just feel that having work helps keep a person young (and the income would be nice). But if I can't work, I am okay to live comfortably, but simply.

KlangFool
Posts: 16641
Joined: Sat Oct 11, 2008 12:35 pm

Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by KlangFool » Sun Jan 12, 2020 8:41 pm

Calico wrote:
Sun Jan 12, 2020 7:57 pm

I think I am. I won't be a millionaire upon retirement, but I will be okay. I currently save as much as I can, sort of. Technically, I should not be putting anything into a 529 according to conventional wisdom. But I still put $100 a month into it. I have to say, I am glad I did because it will help.
Calico,

And, you are paying 20+% taxes doing it. Instead, you could contribute that amount plus the 20+% tax savings into the 401K. Then, when your daughter goes to college, you could reduce your 401K and/or Roth contribution to fund college education if necessary.

KlangFool

KlangFool
Posts: 16641
Joined: Sat Oct 11, 2008 12:35 pm

Re: Need ideas on what to do with deferred income to reduce EFC for college

Post by KlangFool » Sun Jan 12, 2020 8:47 pm

OP,

If you sell your house here and buy or rent a house to where your daughter is going to college, you will save at least 15K per year of room and board. That is an immediate savings of 60K.

KlangFool

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