We recently went to our high school's presentation on financial aid considerations for college.
One of the initial planning items discussed was how the assets were tabulated by the FAFSA for the student & parent on the forms.
Here is what I recall - but can't find it mentioned on the web ?
Student Parent Assets = 20% Assets = 6% Income = 50% Income = 47%
Another discussion was related to "base year", and basically (like income taxes), you wanted to reduce the amount of income you would show in the year prior to filing the FAFSA, which would normally be your junior year.
My daughter is a junior this year. I'm maxing out everything that I can with pre-tax payroll deductions -- 401(k), Healthcare Savings Account, etc. -- and I'm planning to take $3000 in capital losses from losers in my portfolio (any more than that and I'd have to carry it over to the next year.)
I want my adjusted gross income to look really pitiful in 2007. I don't know how much it will help, but it can't hurt anything.
How are student assets in a retirement account (like an IRA) counted?
I learned this the hard way after the first or second year (been filing FAFSA's going on six years now... two or three more years to go!)
I've even read nationally syndicated columnists talk about "sheltering" the parents' assets from FAFSA calculation, but as your numbers show (and I think the 47% for parental income is a little high, but not much), the parents' current income has a much higher impact -- so if they are still in peak earning years, the likelihood of need-based financial aid will be between zero and none, regardless of their assets.
They won't show you the EFC (expected family contribution) until AFTER you have submitted your numbers, so do-it-yourself "what-if" is not possible, unlike with tax planning.
The FAFSA you file now (Jan-Mar 2007, typically) for the upcoming school year (Jul 2007- Jun 2008) will ask you for tax year 2006 info. You're right, your actually income during the school year in question doesn't count retroactively.
There are FAFSA planners who for a fee will help you "game" the system, but I've never used one. Unfortunately FAFSA formula takes into account a lot more than just your taxable (let alone adjusted gross) income. Here, FWIW, is a listing of the FAFSA amounts you must report and how they relate to your taxable income. I posted this a year ago to misc.taxes.moderated but with moderator's indulgence will re-post here.
My characterization of the three worksheets is as follows:
worksheet A: government welfare payments to you worksheet B: untaxed regular income worksheet C: attaboy's (income already going to education)
=========== Worksheet A Earned Income Credit Additional Child Tax Credit Welfare Benefits Untaxed Social Security Benefits Worksheet B Payments to Tax-Deferred Pensions & Savings Deductible IRA/Keogh Payments Child Support Received Tax Exempt Interest Income Foreign Income Exclusion Untaxed Portions of IRA Distributions Untaxed Portions of Pensions Credit for Federal Tax on Special Fuels Housing, Food, & Living Allowances Veterans? Noneducation Benefits Other Untaxed Income or Benefits Money Received (not reported elsewhere)
Worksheet C Education Credits Child Support Paid Taxable Work-Study Earnings Grant and Scholarship Aid (reported in AGI)
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