Author Topic: Quitting job before kids go to college - FAFSA  (Read 4544 times)

SuperSecretName

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Quitting job before kids go to college - FAFSA
« on: April 29, 2015, 11:09:35 AM »
Seemingly, FAFSA only asks for income from prior year. 

Given our proclivities to live cheaply, wouldn't it be feasible to quit my job the year prior to applying?  So, if child will apply to school in Fall 2016, and would fill out FAFSA in spring 2017, I would need to be minimally employed for all of 2016.  I can shift 529 to grandparents, and 401k/IRA are not counted.  Only financial liability would be my taxable account. 

"A family can qualify for the simplified needs test, if the parents have an adjusted gross income under $50,000 and are eligible to file a simplified federal income tax return, such as an IRS Form 1040A or 1040EZ. The simplified needs test disregards all assets."
http://www.fastweb.com/financial-aid/articles/which-assets-and-debts-are-reported-on-the-fafsa

Please let's not get sidetracked on ethics/morals of this.  Assume I could FIRE before my kids go to college, but wouldn't want to as to be able to pay for their (in-state) tuition.

Axecleaver

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Re: Quitting job before kids go to college - FAFSA
« Reply #1 on: April 29, 2015, 11:33:50 AM »
Quote
and 401k/IRA are not counted.

This is not quite correct. It's true that the total assets are not counted, but contributions to tax-deferred retirement funds are counted as part of your modified adjusted gross income. Here's a good thread on one man's experience with this:

http://www.fatwallet.com/forums/finance/892148/

But to answer your question, yes, reducing your income from work the year before your kid goes to college does, in fact, help them qualify for more aid. You just can't use deferred retirement as part of your income reduction strategy.

teen persuasion

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Re: Quitting job before kids go to college - FAFSA
« Reply #2 on: April 29, 2015, 12:09:29 PM »
The theory is sound,  but execution can be troublesome.  What counts as "income" is tricky and sometimes contradictory.  If your AGI is below $50k and you can file 1040 a or EZ, yes, you meet the simplified needs test and they ignore assets.  We meet the AGI part (thru 401k contributions), but we have an HSA, so must file 1040, but our income to family size qualify us for free/reduced lunches, another way to qualify.  If AGI is below $24k (I think) and same as before, then you qualify for an automatic EFC = 0.  That threshold is down from the $32k it was a few years ago - we easily hit that one, but no longer.

After that test, your retirement contributions are added back in, as well as tax free income (like Roth withdrawals!), as well as subtracting out certain costs: taxes paid, SS paid, employment allowance, living allowance.  Anything left over is considered allowable income, and a percentage is assessed as your EFC.  Then your child's income and assets are assessed.

Google "EFC formulas" and "paper FAFSA" to get the links to compute it on your own.  The paper FAFSA is to see exactly what inputs they want in the formulas.  Start on page 9 in the formula booklet.  The allowance charts change yearly, and for some reason the savings protection one especially seems to shrink rather than grow with inflation.