Poor

[cxr133]

I read sonmething interesting to me on a post here few days ago.
i dont remember which thread it was in but a person made a comment that they were poor on paper and that got me wondering what type of strategies should i be looking at now before retirement to do this.

both me and my wife are wage earners. in our mid 50s so we are at the highest income level than we have ever been. we noticed a few years ago when filling out or sons FAFSA we actually look rich on paper right now.

To look poor on paper is this only after retirement and living frugally? are are there steps that can be done now besides 401K to bring down taxable income?

if this has been discussed before im sorry i am a newbie

TIA

 

[Sunset]

I think there are many aspects to this.

For example as person might only have $6,000 income in a year. Certainly sounds poor, but a look at their bank account might show $1 Million.
Yet for Medicaid, they would show up as rich.

Which poor do you want to be and why would probably determine which way to get poor.

 

[bloom2708]

You can have an annual income of $500k and a negative net worth.

You can have $3 million in investments and have only dividend/interest income.

Who is rich and who is poor?

Was it related to college FAFSA? Some things are not counted.

If you had $2 million in cash and purchased a $3 million house and used your $2 million as down payment with a $1 million mortgage, your net worth is the same.

With no cash/investments and $1 million in house equity, are you poor?

Some have a higher net worth but are in assets that are tougher to live on.

Many ways to look at this. You could be talking about "Millionaire Next Door" stuff. People with money who drive 2002 Toyota Camry's or 2000 Ford Rangers and have millions in savings/investments. They live in their original house, etc.

 

[davebarnes]

FAFSA and CSS Profile poor are the best kinds.

 

[Dtail]

Are you looking to be "poor" in order to achieve ACA subsidy savings?

 

[cxr133]

FAFSA and CSS Profile poor are the best kinds.

Yes , but how is this accomplished? have to do FAFSA again in 2 years

 

[cxr133]

Are you looking to be "poor" in order to achieve ACA subsidy savings?

No not right now. i typed mid 50s but we are early 50s (51, 52) probbaly looking to retired sometime after 55 -58 or 58-60 maybe the 2030 club . still working on all those details.

mostly looking right now on strategies to cut down on taxable income (because we are wage earners) and be FAFSA poor in 2 years

 

[Gumby]

No not right now. i typed mid 50s but we are early 50s (51, 52) probbaly looking to retired sometime after 55 -58 or 58-60 maybe the 2030 club . still working on all those details.

mostly looking right now on strategies to cut down on taxable income (because we are wage earners) and be FAFSA poor in 2 years

1. Are you maxing out your 401k,403b and/or 457 plans?
2. Are you taking advantage of the age 50+ catchup provisions in those plans?
3. How about tIRA? If eligible, are you maxing your contributions?
4. Are you maxing Roth contributions so you have less in taxable accounts generating income?
5. Have you allocated your holdings so that the things that generate ordinary income are in non-taxable or tax deferred accounts and those that will only generate capital gains if and when you sell are in the taxable accounts?

 

[Hermit]

I maxed out my tax deferred 401k the last 20 years of my working life. Now I pay through the nose for taxes and Medicare because of retirement income while single. (DW died very suddenly four years before I retired.) I'm trying to stay within the 24% tax bracket and at 3% for Medicare high income premiums (no added benefits), but I may get above that in years to come. Keeping your income as low as possible during your working life can be a two edged sword. BTW, I was so far out of the FASFA realm I didn't even bother applying. Kids' tuition and living expenses were paid out of current income. Again, that was affected by me being single. A spreadsheet can help work through current and future tax impacts. No easy answer.

 

[anothercog]

I maxed out my tax deferred 401k the last 20 years of my working life. Now I pay through the nose for taxes and Medicare because of retirement income while single. (DW died very suddenly four years before I retired.) I'm trying to stay within the 24% tax bracket and at 3% for Medicare high income premiums (no added benefits), but I may get above that in years to come. Keeping your income as low as possible during your working life can be a two edged sword. BTW, I was so far out of the FASFA realm I didn't even bother applying. Kids' tuition and living expenses were paid out of current income. Again, that was affected by me being single. A spreadsheet can help work through current and future tax impacts. No easy answer.

Curious. Did you have to pay full sticker price for kids' tuition or did you get any kind of scholarship/price breaks? I heard people should file FASFA even if they won't qualify as they still may be able to tap into some scholarships, etc. I thought very few pay full sticker price.

 

[gayl]

Yes , but how is this accomplished? have to do FAFSA again in 2 years

I thought FAFSA was done every year, we had to for yearly scholarships

 

[Calico]

I thought FAFSA was done every year, we had to for yearly scholarships

Just a guess - maybe one kid has finished college and another kid starts in two years?

 

[davebarnes]

Scrutinize the forms

Yes, but how is this accomplished? have to do FAFSA again in 2 years

Have zero income.
Have zero reportable non-retirement funds.
Child has no money.
Have mortgage debt.

Krugerrands are your friends.
529s are the enemy.

 

[Hermit]

Curious. Did you have to pay full sticker price for kids' tuition or did you get any kind of scholarship/price breaks? I heard people should file FASFA even if they won't qualify as they still may be able to tap into some scholarships, etc. I thought very few pay full sticker price.

Kids went to state colleges. DD had a $1k/semester scholarship. Other than that I paid full tuition for both which was about the same as their private high school.

 

[1242Vintage]

You need to fill out FAFSA every year. We are recently retired in our mid-50s and just finishing up university years for three kids. It seemed like every semester their universities would throw a few thousand our way from some random scholarship fund to make us feel like we are getting a discount.

Beyond maxing out 457 plan, 401(k) and IRA contribution, our additional strategy to appear needy on the FAFSA was to put spare cash into our mortgage. We then opened an equity line of credit should we need to access that equity.

Back in December we made our very last tuition payment for our youngest kid who will graduate in May into the wild world of nursing. Older two (engineer and physicist) graduated university with a tiny amount of student debt when they took federally subsidized student loans. These federal loans don’t accrue interest until after graduation. I think it was in the $5-10k range total.

 

[ncbill]

Yes, but how is this accomplished? have to do FAFSA again in 2 years

Well, you might be able to play games with FAFSA, but CSS Profile counts practically everything including equity in your home.

Might want to bribe your kid to enlist...veterans are independent under both FAFSA & CSS Profile.

Or, in many U.S. states simply joining the state National Guard covers tuition at in-state, public schools.

That's what one of my kids would have done to attend an out-of-state public university (out-of-state tuition there is $$$) had they not received a last-minute, campus-based ROTC scholarship at a private school.