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What fafsa loopholes did you find with ER?
Old 04-17-2014, 11:52 PM   #1
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What fafsa loopholes did you find with ER?

Hi,

So I'm getting ahead of myself a little, but that is my M.O. We plan to adopt in the next few years and because we both had college paid for, we would like to be able to do the same for our kids. I am thinking of setting aside a lump sum instead of putting money aside monthly so that it is more or less a non-issue when we FIRE. One less bill is the way I think of it. For some reason with all of the time value of money calculators, I keep coming back to $50,000. Input is appreciated on amount and concept.

For those of you that have exited the rat race and/or slowed down while paying for college, have you found any loopholes with FAFSA that I should keep in mind?

Should these be parental/grandparent assets or should we do 529 and have it be an asset in the child's name even though CA gives no tax break for these plans? Did you find that after FIRE your child qualified for more grants because AGI was lower?

We aren't setting this up today but we just closed escrow on what we hope to be our forever family home so it's like we now have goals with finite payoff amounts (the way my brain works). Before when we had our "starter" home and then rented in between selling and figuring out the next step we were just putting away money without a plan because we knew we weren't done settling down...so it's nice to have goals we can measure: to pay off our car, mortgage and save for college as the biggies aside from normal ER saving/investment methods.

Thanks in advance
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Old 04-18-2014, 12:09 AM   #2
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For those of you that have exited the rat race and/or slowed down while paying for college, have you found any loopholes with FAFSA that I should keep in mind?
Check out Forbes online for FAFSA loopholes. FAFSA doesn't count a lot of assets like businesses under 100 employees, personal residence and retirement accounts.
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Old 04-18-2014, 12:55 AM   #3
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First, keep as much as you can out of the child's name. FAFSA has them contributing 50% of their assets towards their college costs, vs ~5% of your assets. You can get around this 5% contribution of your assets if you meet the simplified means test. To meet this test, you need less than 50K AGI, and be able to file either a 1040A or 1040EZ. This is the difficult hurdle as you must have less than $1500 in dividend income to qualify for 1040A or EZ. Tough to do if you are ER due to accumulating significant assets outside of retirement accounts. For instance, if you have 500K in after-tax investments, you can plan on a minimum family contribution of $25K/year. Basically, you'll be paying for a good portion of the costs.
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Old 04-18-2014, 09:47 AM   #4
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Some children do not take to school well and wind up considering college only after a stint working, often in a dead end job. In such a case the parents would be well advised to retain control of the money in their names. Of course, when they are very young one cannot imagine such a scenario unfolding.

The great thing about a late bloomer is that they can apply for financial assistance without having to divulge the parent's financials. So there is possibly a FAFSA end run in this case.
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Old 04-18-2014, 01:42 PM   #5
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Originally Posted by calichica View Post
Hi,

So I'm getting ahead of myself a little, but that is my M.O. We plan to adopt in the next few years and because we both had college paid for, we would like to be able to do the same for our kids. I am thinking of setting aside a lump sum instead of putting money aside monthly so that it is more or less a non-issue when we FIRE. One less bill is the way I think of it. For some reason with all of the time value of money calculators, I keep coming back to $50,000. Input is appreciated on amount and concept.

For those of you that have exited the rat race and/or slowed down while paying for college, have you found any loopholes with FAFSA that I should keep in mind?

Should these be parental/grandparent assets or should we do 529 and have it be an asset in the child's name even though CA gives no tax break for these plans? Did you find that after FIRE your child qualified for more grants because AGI was lower?

We aren't setting this up today but we just closed escrow on what we hope to be our forever family home so it's like we now have goals with finite payoff amounts (the way my brain works). Before when we had our "starter" home and then rented in between selling and figuring out the next step we were just putting away money without a plan because we knew we weren't done settling down...so it's nice to have goals we can measure: to pay off our car, mortgage and save for college as the biggies aside from normal ER saving/investment methods.

Thanks in advance
Interesting. We adopted 2, when they were 2 and 3 months old. Also, planned for College. Also, took out extra life insurance till children were older. One word of advice. Something, no one advises parents who adopt.
Adopted Children have a higher than average rate of learning disabilities then the general population. Issues surface during middle school and high
school years. (Note: very difficult to find this out, but is in all college
textbooks). Good Luck.
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Old 04-18-2014, 01:56 PM   #6
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A lot can happen over that long a timeframe. In my case we save for education in taxable funds but DD went to college during some of my peak earning years so between the scholarship/discount they dangled in front of her to attend there and cash flow the college costs were quite manageable without invading savings. We also have money earmarked for DS but he as of yet has decided to work but if he changes his mind I keep reminding him it is available to him.
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Old 04-18-2014, 02:41 PM   #7
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Originally Posted by calichica View Post
Hi,

So I'm getting ahead of myself a little, but that is my M.O. We plan to adopt in the next few years and because we both had college paid for, we would like to be able to do the same for our kids.

...

For those of you that have exited the rat race and/or slowed down while paying for college, have you found any loopholes with FAFSA that I should keep in mind?
I'm confused. If you are going to pay for your kids college expenses, why worry about FAFSA?

One of the joys of reaching financial independence for me was to be able to skip dealing with all that when my son went to college.

Even without submitting to FAFSA, your kids can still receive merit scholarships - my son received one at his chosen school.
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Old 04-18-2014, 03:20 PM   #8
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DW and DD wanted me to fill out the FASFA forms. I refused. DD was really pissed about it.

I knew from the research I had done that at the end of the day between our income and wealth that we would get nothing or next to nothing and I didn't like the idea of opening up the financial kimono to some government bureaucrat.
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Old 04-18-2014, 03:45 PM   #9
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"Financial kimono", I like that phrase.
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Old 04-18-2014, 03:53 PM   #10
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DW and DD wanted me to fill out the FASFA forms. I refused. DD was really pissed about it.

I knew from the research I had done that at the end of the day between our income and wealth that we would get nothing or next to nothing and I didn't like the idea of opening up the financial kimono to some government bureaucrat.
Eh, if you have ever handled a penny the gubmint already has your DNA.
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Old 04-18-2014, 07:08 PM   #11
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On the main question, I think that trying to get much aid for our children is not likely. Our EFC is just too high. But, we've handled this by having our kids attend community college and then, if so inclined, state university. So, expenses are relatively low.

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Interesting. We adopted 2, when they were 2 and 3 months old. Also, planned for College. Also, took out extra life insurance till children were older. One word of advice. Something, no one advises parents who adopt.
Adopted Children have a higher than average rate of learning disabilities then the general population. Issues surface during middle school and high
school years. (Note: very difficult to find this out, but is in all college
textbooks). Good Luck.
As an adoptee and an adoptive parent, I would add a few comments. It is true that adoptive children don't share genes with adoptive parents so it does not behoove an adoptive parent to assume the children will be the same as the adoptive parent.

The main point I want to make is not to think that post-high school education is necessarily foreclosed to kids with Learning Disabilities or other disabilities. My adopted daughter has ADHD and doesn't want a bachelor's degree but is doing very well in a course of study at the community college that will lead to a certificate.

Further, there are kids with LDs or other disabilities who attend a university. My bio son right now receives accommodations at the university for both dysgraphia and ADHD. When younger he was dyslexic and received dyslexia remediation as a child. At the same time, he is intellectually gifted (graduated high school at 15). College has been more of a roller coaster for him, but despite the LDs he is currently a junior majoring in computer science and doing well. The point is that for some students LDs are a challenge, but with some simple accommodations in college the student may be able to do well (he gets to type exam answers due to his dysgraphia and gets modest extended time, for example).

I would also say that sometimes there can be differences between adoptee and adoptive parents that go in the other direction. In my case as an adoptee, I was adopted by parents of average intelligence who had no education beyond high school. In fact, my dad was a high school drop out. They were thoroughly bemused by me. They were in favor of me going to college (no one in the family had ever gone to college before my generation). But, they were little to no help to me in making decisions, etc. They thought one college was just as good as another college and they weren't happy when I went to law school. They felt I was aspiring to too much. They did pay for my schooling, so I was grateful for that, but otherwise I was a high achiever and they found that hard to understand. I think they would have been much happier had I graduated high school, gotten a bachelor's degree and a good job and stopped there.
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Old 04-18-2014, 08:08 PM   #12
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If you can keep your taxable income & AGI low enough and assets in noncountable asset classes, then significant ACA premiums and financial aid plus zero state and federal income taxes (maybe even refundable tax credits) may be a possibility for your household. If you have the kind of income you pull, like 401K drawdowns or salary draws, having low expenses may mean less pull is needed which may mean less taxable (realized) income.

We probably spend as much time these days cutting unnecessary expenses as we do earning more income working part-time as the expense cuts allow us to keep our taxable income / O-MAGI low, and especially below the ACA subsidy cliff. A Bronze plan plan / HSA helps with that.

Another tactic is a HELOC could be used to take just enough money for living expenses, but not too much to increase your after tax accounts, out of your house for living expenses without creating taxable income, at least in the short term while the kids are in college and you are paying their college expenses plus health care premiums.

From the Millionaire Next Door Author's blog -

"Millionaires know that the more they spend, the more income they must realize. The more they realize, the more they must allocate for income taxes. So . . . adhere to an important rule: To build wealth, minimize your realized (taxable) income and maximize your unrealized income (wealth/capital appreciation without a cash flow)."

The government already has much of the FAFSA information since most of the entries get validated from federal tax forms.
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Old 04-18-2014, 08:13 PM   #13
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Eh, if you have ever handled a penny the gubmint already has your DNA.
They can have my DNA. And while I know they probably have access to all the disparate pieces of my balance sheet with a little work, I wouldn't want to lay it out all nice and easy for some gubmint bumpkin as one has to do in the FASFA.
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Old 04-18-2014, 08:59 PM   #14
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They can have my DNA. And while I know they probably have access to all the disparate pieces of my balance sheet with a little work, I wouldn't want to lay it out all nice and easy for some gubmint bumpkin as one has to do in the FASFA.
You really think they don't already have it?
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Old 04-18-2014, 09:05 PM   #15
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Yes, I really don't think they have it. They may have some or most of the pieces on disparate systems that don't talk to each other but they don't have it organized on a single page they way you would do it in a FASFA.

The reality is they don't have their sh*t together enough to have it. WADR, it seems to me naive to think they do.
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Old 04-18-2014, 09:40 PM   #16
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Yes, I really don't think they have it. They may have some or most of the pieces on disparate systems that don't talk to each other but they don't have it organized on a single page they way you would do it in a FASFA.

The reality is they don't have their sh*t together enough to have it. WADR, it seems to me naive to think they do.

Unless they decide for some reason to care and/or take a closer look. When that happens I am pretty sure it is not that hard for a motivated analyst to pull together a more or less complete picture.

WADR = ?
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Old 04-21-2014, 01:07 PM   #17
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I knew from the research I had done that at the end of the day between our income and wealth that we would get nothing or next to nothing and I didn't like the idea of opening up the financial kimono to some government bureaucrat.
What do you think is the level of income / assets where completing the FAFSA is pointless?
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Old 04-21-2014, 01:16 PM   #18
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I don't recall and this was 10 years ago so I'm sure things have changed since I last looked at it. IIRC there are lots of calculators out there that can give you a ballpark estimate of your expected family contribution. Since out EFC was substantially more than the cost, it wasn't worth it for me. She went during my peak earning years which was a double-edged sword - we didn't qualify for any aid but we had good cash flow to help with the bills.
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Old 04-21-2014, 02:14 PM   #19
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I've been assuming that my kids won't qualify for much aide.
That said - most of our savings is in retirement accounts (IRAs, 401ks, inherited IRA, etc.) - which I've been told is counted at a lesser rate.

We set up 529's for our kids - but have reached the point we won't be adding additional funds. Now that DH is retired, our income is low enough that we can start putting $ into Roth IRAs. I believe you can use Roth money for college expenses.


As far as funding... We've prefunded about 2/3's of their college expenses. DH retired earlier this year. I'm retiring next year. Our spending spreadsheet includes continuing to fund ($6k/year/kid) till they turn 18. We should have more than enough to pay for a public school education (CSU or UC).
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Old 04-21-2014, 05:00 PM   #20
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What do you think is the level of income / assets where completing the FAFSA is pointless?
This probably depends on what your goal is and where your kids are going to school.

When I did a play FAFSA

https://fafsa.ed.gov/FAFSA/app/f4cForm?execution=e1s1

In our case, 2 kids in college, I found that it was very difficult to get our income to a level where our kids could receive anything other than loans. We don't really want them to have loans so that isn't very helpful.

It is possible that if they were attending expensive private universities that some university aid might be forthcoming above that. But, we have chosen for them to attend public colleges so that isn't a factor.
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