FAFSA planning questions

[jinkies]

This is a very specific question, but I'm hoping that someone can at least tell me what professional I should talk to.

My parents are (finally) writing a will. They want to start filtering money to us before they die to avoid estate taxes, potentially within the next few months. 

My son is a current junior in high school. I don't want to accept any sort of one-time large income that would complicate his scholarship eligibility, and initially told my parents that we couldn't accept anything until we learn more about how it would affect FAFSA. 

I have a complicated relationship with my parents and H is pressuring me to accept the money whenever they will give it, because he is worried that they won't follow through if we wait. 


Is there a way to accept money now without complicating our FAFSA? Like a way to protect it in a type of fund that wouldn't be considered? What sort of professional could give advice on this?

Or is the only option to trust my parents to follow through with the money in the fall of 2026? If nothing else, I would like to know exactly how much we would have access to because it will affect DS's college decisions, but again, complicated relationships and there is a concern that they will tell me $X now, but when the time comes give a smaller amount if they are still in control of the funds. 

[archiethedragon]

FAFSA is almost entirely based on income. Gifts from your parents won’t count as income.

It will increase your assets, but that has a small affect on FASFS calculations.


Also unless your partners net worth is in the $10 million dollar range there will not be any federal estate taxes.

[jinkies]

archiethedragon, thank you!

I live in a state with inheritance tax, which is what they are concerned about. We are definitely not worth $10 million (although college costs would be much easier if we were)

[archiethedragon]

Oct 2, 2024 13:37:45 GMT -5 jinkies said:

archiethedragon, thank you!

I live in a state with inheritance tax, which is what they are concerned about. We are definitely not worth $10 million (although college costs would be much easier if we were)

Meant to say parents net worth, not partners….

[tripleshot]

My son just started college so this is kind of fresh in my mind. I think only 5.64% of parent assets are only counted by FAFSA for family contribution. So if they'll give you the money now, just put it in a HYSA. Student assets count for like 20%. As far as I know, there''s no safe account from FAFSA except for retirement accounts. There's a FB group called "Understanding College Aid" and the admin is super knowledgeable. It's not a very active page, but it's helpful with questions like this.

[plutosmoon]

The FAFSA will use your federal taxes for income, so no worries if you have an inheritance on your state tax. I've worked in financial aid offices for over 20 years and we don't care about state taxes. As mentioned, FAFSA is a very heavily driven income formula and while assets do play a part it's not nearly as much as people think. I work mainly with the CSS Profile and their formula is similarly weighted heavily on income, only counting about 5% of your assets as available. Retirement accounts are still excluded from assets on both FAFSA and CSS Profile.

If your are talking hundreds of thousands of dollars, it'll be hard to hide in any vehicle, you can only dump so much into retirement. Just report your accounts and pay the 5%. There is a whole industry of college financial aid planners and consultants that can help you hide it if you want to go that route. Much of asset reporting in financial aid still relies on the honestly of parents, we aren't tracking down your accounts or collecting bank statements.

[orval]

Also, if you are low income, FAFSA only qualifies you for a Pell Grant from what I understand. So if you make upward of $100k(probably more like $60k), it won't matter.
Your parents can gift you money every year on a federal level with no tax. Each parent can gift you separately $18k each year so $36k. Not sure about state gift taxes.

[niq]

Like plutosmoon said, there's only so much you can do.

One strategy is to just prepay a bunch of expensive stuff. Like if you think you might want to take a big vacation in two years, pay for it up front. Buy season tickets to sports or theater. Don't take your tax refund, instead check the box that says "apply my overpayment to next year's taxes". Etc etc.

Your grandparents can also put a bunch of money into a 529 (subject to gift limits). I think after the latest FAFSA simplification the best thing to do is have grandparents own the account and have grandkids as the beneficiaries.

[jinkies]

Thanks everyone!

Obviously it was many years ago, but my parents had a one-time large payout my junior year (after being near poverty level for the entirety of my life leading up to that) which I remember affecting my college stuff. I don't want to mess anything up for DS. I think theirs would have qualified as income vs a gift though (it was a unique thing) which is probably why it was considered.

It sounds like a non-issue for us though since this would be a gift.

I appreciate all the information!

[plutosmoon]

Oct 3, 2024 8:41:44 GMT -5 orval said:

Also, if you are low income, FAFSA only qualifies you for a Pell Grant from what I understand. So if you make upward of $100k(probably more like $60k), it won't matter.
Your parents can gift you money every year on a federal level with no tax. Each parent can gift you separately $18k each year so $36k. Not sure about state gift taxes.

Many schools use the FAFSA SAI to award institutional dollars. So in some cases, even at higher incomes extra income matters. Fortunately, there isn't extra income here. It also matters for some state grants, subsidized vs unsubsidized loans and work study awards. Work study eligible students often get priority in jobs and hiring order over students who just want to work on campus.

I almost always recommend completing it, although there are schools where it truly doesn't matter. The school I currently work at doesn't require the FAFSA for a large number of aid students due to how our aid program works.