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psychtobe said:   The problem is the need to convert deferred capital gains to realized capital gains in order to move the assets into a VA. Even today the taxes on my gains would be substantial. So I can see running that show with new money but it still doesn't get rid of the old.

And it could well be that in your specific situation there is no effective strategy. Or, as with numerous other families, such a high level of income and assets that even $75k-100k in annual college expenses is a non-issue.

The problem is without a lot more details from you -- details I sure would not want to be sharing with random goofs on the interwebs -- it's very hard to run through all the different possible scenarios.

For some people on this board, "substantial" means $14k. I suspect for you substantial may have an additional zero or two attached.

BrodyInsurance said:   I am simply pointing out that for FAFSA purposes it is easy to make assets disappear. Have $1,000,000 in bank accounts? Put it in a fixed annuity instead. It could lower your EFC by $56,400. Is that tangible enough?

And keep in mind that 5.64% is for each year you have a child in college.

So if you have 1 child in college for 4 years, the $1mm fixed annuity could lower your EFC by a total of $207,222

If you have 2 children who together are in college at one point or another over 7 years, the $1mm annuity could lower your EFC by a total of $333,937

If you have 3 children who together are in college at one point or another over 10 years, the $1mm annuity could lower your EFC by a total of $440,398

That all assumes the worst case that your $1mm in bank accounts would be earning 0% interest over that entire 10 year period. For a non-zero interest rate, your EFC savings would be even higher.

I contribute only the max allowed for tax deduction in my state each year for an only child. I also understand that most financial aids are loans not grants so they need to be paid back anyway. If that is the case how can a 529 be a disadvantage assuming I contribute enough to pay all of my child's college expenses? In this case we are not talking about free money. We are probably only talking about cheap money I probably don't need.

raspino said:   I also understand that most financial aids are loans not grants so they need to be paid back anyway. If that is the case how can a 529 be a disadvantage assuming I contribute enough to pay all of my child's college expenses? In this case we are not talking about free money. We are probably only talking about cheap money I probably don't need.

1. The portion of financial aid that is grants is highly YMMV. Especially with the new attention being placed on the amount of debt new grads have. Do not assume you will not get grants. Investigate the schools your children will attend and find out the specifics. The financial aid office should be able to provide you with specifics. And increasingly that information is available on their web sites.

2. If you fully fund the 529 without first looking at the specifics, you guarantee you will not receive any grant money.

3. Even if you only focus on loans, there can be value in subsidized loans where the interest is free during the college years and does not accrue until several months after graduation ... at which point the interest may be deductible and -- depending on the choice of careers -- the loan principal could be forgiven.

If you pay in full, you greatly reduce the likelihood of grants. I was going to say you certainly will not get grants, but in a world of "every player gets a trophy" there are schools where nearly every accepted applicant gets at least some nominal grant of perhaps 5% regardless of need.

If you pay in full, you certainly will not get 4 years of interest free loans.

If you pay in full, your child will have no loans eligible for forgiveness.

Again, the devil is in the details.

What greatly saddens me is the likelihood that lower- and moderate income families are putting money into 529s, getting nearly nothing in terms of tax benefit and screwing themselves out of not just school-sponsored grants but also federal money.

edit: even if you do not "need" the interest free loan, you can effectively reduce the cost of college by perhaps 10% through judicious use of that kind of debt.

edit: keep in mind that once you qualify for a given year's subsidized loan, that loan stays subsidized even if your income later increases.

kaneohe said:   If you tranfer via UTMA to kids to lower your EFC, what happens to the kid's expected contribution? I thought their expected % is higher than yours?

Which kid? If I give Child #1 $100,000 and then we fill out the FAFSA for Child #1, we have just increased the EFC by having that asset count as 20% instead of 5.64%.

Instead, if I give Child #2 $100,000 and then we fill out the FAFSA for Child #1, we have just decreased the EFC by having that asset count as 0% instead of 5.64%.

Of course, your next comment is going to be to point out that when Child #2 goes to school, that asset is going to count as 20% instead of 5.6%. UTMAs can be used for virtually anything as long as it benefits the child. Take all of the expenses that you usually pay for your child and use the UTMA to pay for them. If there is still money in the UTMA when it comes time to fill out the FAFSA, put it in an UTMA/529. It will then go back to being counted as 5.64% instead of 20%.

As BEEFjerKAY keeps pointing out, we have a financial aid system that can be absolutely brutal to those who do what should be the right thing. Here's a realistic example.

Jim and John are identical in every way. The only difference is that Jim buys a much bigger house while John thinks that it is important to put that extra money into a college fund. The bigger house/college fund is $1,500 month. If the college fund grows at 8% for 15 years, John will be expected to contribute $28,000/year more for college than Jim.

If we change the facts slightly and instead of the big house, Jim focuses completely on his retirement and puts the money in 401(k)/IRA/annuities, the end result will be the same. John will be expected to pay $28,000/year more for school because he made education funding a priority.

Ahhh... Now we are really getting somewhere. *thank you* guys.

Regardless of other countable assets, have I already shot myself in the foot by funding 529s (owner: me; beneficiary: kids)?

BrodyInsurance said:   kaneohe said:   If you tranfer via UTMA to kids to lower your EFC, what happens to the kid's expected contribution? I thought their expected % is higher than yours?

Which kid? If I give Child #1 $100,000 and then we fill out the FAFSA for Child #1, we have just increased the EFC by having that asset count as 20% instead of 5.64%.

Instead, if I give Child #2 $100,000 and then we fill out the FAFSA for Child #1, we have just decreased the EFC by having that asset count as 0% instead of 5.64%.

Of course, your next comment is going to be to point out that when Child #2 goes to school, that asset is going to count as 20% instead of 5.6%. UTMAs can be used for virtually anything as long as it benefits the child. Take all of the expenses that you usually pay for your child and use the UTMA to pay for them. If there is still money in the UTMA when it comes time to fill out the FAFSA, put it in an UTMA/529. It will then go back to being counted as 5.64% instead of 20%.

As BEEFjerKAY keeps pointing out, we have a financial aid system that can be absolutely brutal to those who do what should be the right thing. Here's a realistic example.

Jim and John are identical in every way. The only difference is that Jim buys a much bigger house while John thinks that it is important to put that extra money into a college fund. The bigger house/college fund is $1,500 month. If the college fund grows at 8% for 15 years, John will be expected to contribute $28,000/year more for college than Jim.

If we change the facts slightly and instead of the big house, Jim focuses completely on his retirement and puts the money in 401(k)/IRA/annuities, the end result will be the same. John will be expected to pay $28,000/year more for school because he made education funding a priority.


BrodyI....thanks again for your wisdom (based on popularity of this thread, perhaps you guys should have a sticky up front). OK, makes sense. Right now only one kid involved so that's why I was confused.

psychtobe said:   Regardless of other countable assets, have I already shot myself in the foot by funding 529s (owner: me; beneficiary: kids)?

I wouldn't say that. It truly depends upon the complete picture. I'm not anti-529. If you are going to have counted assets, and those assets are going to impact aid, I would rather it be a 529 than something else simply because of the ability to use a 529 plan tax free.

Also, the benefit of a 529 plan often has nothing to do with college and everything to do with estate planning. 529 plans can be an excellent way to get money out of one's estate. By being creative, one can put virtually unlimited amounts of money into them and have this money be out of the estate and for no gift taxes to occur.

The one thing that people need to understand about 529 plans is that they defy logic. The knowledge that you have in other areas of finance will cause you to not understand 529 plans.

psychtobe said:   Regardless of other countable assets, have I already shot myself in the foot by funding 529s (owner: me; beneficiary: kids)?

Depends on how big the 529 gains are and whether or not you have any chance of implementing an effective asset and income shielding scheme that might justify closing out the 529.

So I went back to the Princeton calculator and put in two different scenarios.

Scenario 1: current counted assets minus the amount necessary to payoff the mortgage; and I quit working. Only income is my wife and investments. Result: grants of $35,000

Scenario 2: zero counted assets, maintain current income (33% tax bracket). Result: grants of $0.

Using made up numbers here, if $200,000 of additional income is taxed 4% net FICA, 25% average federal, and $35,000 of college grant money lost, the net tax rate is about 50% + state. Plus medicare investment tax, etc.

After all these machinations, I have hit upon the secret sauce: just quit working when my daughter is a sophomore. Pay off the mortgage. Buy some life insurance. Hope she gets into Princeton. Bingo.

psychtobe said:   So I went back to the Princeton calculator and put in two different scenarios.

Scenario 1: current counted assets minus the amount necessary to payoff the mortgage; and I quit working. Only income is my wife and investments. Result: grants of $35,000

Scenario 2: zero counted assets, maintain current income (33% tax bracket). Result: grants of $0.

Using made up numbers here, if $200,000 of additional income is taxed 4% net FICA, 25% average federal, and $35,000 of college grant money lost, the net tax rate is about 50% + state. Plus medicare investment tax, etc.

After all these machinations, I have hit upon the secret sauce: just quit working when my daughter is a sophomore. Pay off the mortgage. Buy some life insurance. Hope she gets into Princeton. Bingo.


Remember, you can't just take off your average tax rate-if you stop working, you're saving at your marginal rate, which will be higher.

not in my scenario. In my scenario, I quit working but my wife increases her hours. I make the great majority of our income right now.

psychtobe said:   not in my scenario. In my scenario, I quit working but my wife increases her hours. I make the great majority of our income right now.That's my issue to. Income levels are so high that EFC numbers mean pay for all the tuition. Assets levels are greater than the maximum number the forms take

psychtobe said:   not in my scenario. In my scenario, I quit working but my wife increases her hours. I make the great majority of our income right now.

Depending on your situation, you might not even need to stop working. Just convert from employee to contractor, thereby opening up a variety of other options.

Or if you cannot convert to 1099 status, a limited side business in equipment leasing can be advantageous in some circumstances.

Again, all of this is highly YMMV.

So let me get this straight, if a 62 year old has $1 million in liquid assets and turns around and buys a low cost variable annuity not only does it not count as an asset for FAFSA/CSS purposes, but because there is no surrender charge or penalty he can basically change his mind at any point and not lose money on the deal (in fact, probably gain money)? Why don't most people do that?!

2stepsbehind said:   So let me get this straight, if a 62 year old has $1 million in liquid assets and turns around and buys a low cost variable annuity not only does it not count as an asset for FAFSA/CSS purposes, but because there is no surrender charge or penalty he can basically change his mind at any point and not lose money on the deal (in fact, probably gain money)? Why don't most people do that?!

Depends on the particular annuity, but true for vanguard. Others may have a surrender period, and almost all will have higher expenses (Jefferson National may have something cheaper depending on the size of the account and what you are trying to do with it). And as psych pointed out, you may have take the tax hit on the way in if you have pent-up gains.

2stepsbehind said:   So let me get this straight, if a 62 year old has $1 million in liquid assets and turns around and buys a low cost variable annuity not only does it not count as an asset for FAFSA/CSS purposes, but because there is no surrender charge or penalty he can basically change his mind at any point and not lose money on the deal (in fact, probably gain money)? Why don't most people do that?!

I don't know what is counted or not for CSS. It is true for FAFSA. The challenge is getting the money from wherever it was into the annuity. It is much easier with fixed money. By "fixed", I am talking about money from checking/cd's/savings. Moving the money won't result in any tax ramifications AND a fixed annuity will have a guaranteed interest rate that is in the same ballpark (often higher) and no expenses. It will have the added benefit of growing tax deferred. The downside is the 10% penalty for withdrawal before 59 1/2. The reality though is that if there are FAFSA benefits, this is a non-issue. The penalty is only going to be 1/10th of the interest. I am bringing that up because this can be a valuable strategy whether one is 62 or 42.

Why don't more people do this? 1)Most people don't take the time to understand the rules. 2)Most advisors don't understand the rules. 3)Many people have falsely learned that annuities are evil products that should never be purchased.

it also doesnt really apply to most people.

Those with significant assets typically have good income and since that income will count, hiding the amount in checking wont make a big difference. If you happen to have kids very late and are retired then possibly. Most 42 year olds are planning on having income.

Additionally variable annuity was mentioned and this could lose money. Other annuities typically would be guaranteed not to lose money except possibly in relationship to inflation.

So I'm glad my original post generated so much discussion and was able to give people an opportunity to discuss their situation and get some great advice from some of the members who really know their stuff (Brody/Beef). After reading 6 pages I think this is what I've come away with.

1. Don't sweat the details on saving for college when my kids are this young (3 &6), too many things are going to change before I really need to worry about it (how financial aid is calculated).
2. Don't superfund or max out a 529 plan(s). Perhaps skip the CT plan altogether and do another state, the $500-$600 savings I may make instate will be offset by the better options another state provides.
3. 529 plans aren't horrible, they may go against need based financial aid but I'm going to have to pay full freight anyways because of my income bracket (hopefully it stays at this level).
4. These are first world problems and while it may "sting" to pay full freight to send my kids to school, would I really want to go through the hoops of "retiring" "starting a business", etc to avoid it. That's up to each individual, to me, not worth it.
5. I need to look more into this "backdoor Roth IRA" because that's something I'm not doing today.

Again thanks to everyone for their posts, it's really been a treat to read these posts, I hope it can continue in some form or fashion.

dhodson said:   it also doesnt really apply to most people.

Those with significant assets typically have good income and since that income will count, hiding the amount in checking wont make a big difference. If you happen to have kids very late and are retired then possibly. Most 42 year olds are planning on having income.

Additionally variable annuity was mentioned and this could lose money. Other annuities typically would be guaranteed not to lose money except possibly in relationship to inflation.


Are you sure that it doesn't apply to most people or are you just taking a guess? It doesn't need to make a big difference for something to be worthwhile. If a strategy lowers someone's college costs by $1,000/year, over the course of 4 years, this is the equivalent of one months worth of work for someone who brings home $50,000/year.

It doesn't take something crazy for this to make a difference and possibly a significant difference. Jim makes $100,000. He has $100,000 in countable assets. Is that some crazy fact pattern? Or do you not think that if he turns those countable assets into uncountable assets, it could make a difference?

2. Don't superfund or max out a 529 plan(s). Perhaps skip the CT plan altogether and do another state, the $500-$600 savings I may make instate will be offset by the better options another state provides.

Lots of time, the answer is to do both.

Ex. Jim wants to put $50,000 into a 529 plan. He can only get a deduction for his home state plan, but he likes a different state better. He puts $5,000 into his home state plan and $45,000 into a different one.

Some states offer a state tax deduction or credit for 529 deposits each year. For instance, Indiana offers a 20% state tax credit on up to $5000 of contributions. These funds can be withdrawn immediately for any qualifying expenses (tuition, books, fees, room and board). So, if any amount will be paid in cash (or near cash), they can be funneled through the 529 first, within a few weeks.

I don't know what that does to financial aid as one would keep the 529 balance low, only contributing the minimum to keep the account open.

As for IRA... you can setup a Roth IRA for your child is he/she earns income and make contributions on his/her behalf. Yes, there is a risk that the child turns 18 years of age and withdraws the money and skips school, but we are all assuming the risk that our children won't go to school despite all of our financial planning to make it happen.

Assuming that your child isn't going into some program that requires attendance at that university for the entire time (some pharmacy, veterinary, medical and nursing schools have a preference/requirement for all credits to be within the university), having your child go to a community college and stay at home for the first year or two will drastically lower your expenses. If you are considering Ivy League without a scholarship, this doesn't apply and I doubt your financial situation is to a point where you are that worried about (though there are some exceptions, I'm sure).

My daughter wants to attend Purdue for veterinary school. I am still researching, but I believe that they want students to attend Purdue (or at least schools that are part of the Purdue system) for pretty much everything. If they don't, I will have her go to the local community college and/or get as many credits from the community college during high school. If they allow credits from within the system, we will have her go to the local school and stay home for the first year or two. At some point, they require her to attend school at the main campus. My thought is to maybe find a small house in the area to buy. She can stay there and have a roommate or two, maybe. We will be able to write off our mortgage interest on this home if we don't have other tenants... and that will be better than adding amounts to school costs for which will exceed in tuition alone. If we have tenants, that will be a different situation, but we can write off the rents from the tenants up to the costs of the mortgage, repairs, insurance, and the regular depreciation schedule.

These are still all up in the air and being researched... time is not on our side as she is a freshman already.

Dus10 said:   
My daughter wants to attend Purdue for veterinary school.


Try to talk her out of it.
http://www.nytimes.com/2013/02/24/business/high-debt-and-falling...

BrodyInsurance said:   dhodson said:   it also doesnt really apply to most people.

Those with significant assets typically have good income and since that income will count, hiding the amount in checking wont make a big difference. If you happen to have kids very late and are retired then possibly. Most 42 year olds are planning on having income.

Additionally variable annuity was mentioned and this could lose money. Other annuities typically would be guaranteed not to lose money except possibly in relationship to inflation.


Are you sure that it doesn't apply to most people or are you just taking a guess? It doesn't need to make a big difference for something to be worthwhile. If a strategy lowers someone's college costs by $1,000/year, over the course of 4 years, this is the equivalent of one months worth of work for someone who brings home $50,000/year.

It doesn't take something crazy for this to make a difference and possibly a significant difference. Jim makes $100,000. He has $100,000 in countable assets. Is that some crazy fact pattern? Or do you not think that if he turns those countable assets into uncountable assets, it could make a difference?


If im not mistaken less than around 10% make over 100k per year to begin with. Thus to start we have eliminated 90%. Then we need to find people with over 100k in income but also have 100k in their checking account. Most of these people if smart would have backdoor roth iras and other accounts such that with their other expenses they arent keeping 100k in checking but im sure there are some that do. We also need to eliminate people who make much more since their income is so high that none of this could possibly work. As we move up the income ladder, this number is smaller of course. Still when you add in these factors, it isnt going to be a large percent of people who could even do it successfully. Finally some of these strategies result in a poor investment. Keeping money in a deferred annuity will likely result in substantially less income in retirement and you need to weigh that vs the cost savings. When you add all this up, sure there is a small % who might benefit but it isnt a big %. Now if you are going to pick people with even less income such as 50k or something like that then i think its even more hard to find them with a bunch of money in checking.

Sesq said:   Dus10 said:   
My daughter wants to attend Purdue for veterinary school.


Try to talk her out of it.
http://www.nytimes.com/2013/02/24/business/high-debt-and-falling...


I was about to post the same thing. Have a friend who is a vet, 32 years old, and still swimming in debt. When it comes time to decide on surgery for Scruffie, *very* few people can afford what it costs a vet to perform the surgery, and pet insurance is so rare as to note even matter. It's a noble occupation, but a financial disaster

If im not mistaken less than around 10% make over 100k per year to begin with. Thus to start we have eliminated 90%. Then we need to find people with over 100k in income but also have 100k in their checking account. Most of these people if smart would have backdoor roth iras and other accounts such that with their other expenses they arent keeping 100k in checking but im sure there are some that do. We also need to eliminate people who make much more since their income is so high that none of this could possibly work. As we move up the income ladder, this number is smaller of course. Still when you add in these factors, it isnt going to be a large percent of people who could even do it successfully. Finally some of these strategies result in a poor investment. Keeping money in a deferred annuity will likely result in substantially less income in retirement and you need to weigh that vs the cost savings. When you add all this up, sure there is a small % who might benefit but it isnt a big %. Now if you are going to pick people with even less income such as 50k or something like that then i think its even more hard to find them with a bunch of money in checking.

You are pretty good at using stats in a meaningless way. Your stat is correct. Now, let's look at it in a more meaningful way. It is household income and not individual income that counts. We are now up to 15-20% instead of 10%. Now, get rid of all of the senior citizens on social security. They aren't sending children to school. Get rid of all of the 20 and 30 somethings. They don't have kids going to college. Get rid of all of those single moms in our cities. They aren't sending their children to college. Why does $100,000 need to be some sort of hard cut off? It's not as if those who make less than $100,000 get a full ride.

How about if we just look at the meaningful population? We are talking about a strategy for people who have children going to school and have countable assets. So, let's only look at people who have countable assets and are sending a child to college. Unless a family has a high enough income that their assets don't matter or low enough so that they are already given a free ride, almost everyone else can benefit.

For every $100 that can be moved, the EFC will drop by $5.60. There is absolutely no reason why doing this would have to result in poor investments.

For almost any realistic scenario that you can think of off the top of your head, some degree of asset shifting can be easily accomplished and will lower the EFC. For example, "Jim" makes $110,000. He is sending his kid to Princeton. The family has $100,000 in counted assets (checking/savings/529 plans/mutual funds). If they could just turn $40,000 of this into an uncounted asset, their EFC would drop by $2,000/year.

This is especially easy for any money sitting in the bank or any investments without a big unrealized gain or any 529 plans for another sibling.

dhodson said:   it also doesnt really apply to most people.

Those with significant assets typically have good income and since that income will count, hiding the amount in checking wont make a big difference. If you happen to have kids very late and are retired then possibly. Most 42 year olds are planning on having income.

Additionally variable annuity was mentioned and this could lose money. Other annuities typically would be guaranteed not to lose money except possibly in relationship to inflation.


So let the people who this doesn't apply to, or don't care, not worry about it. For those whom it may apply to, let them investigate and learn. I don't really care if these strategies don't apply for most people, I only care if it matters to me and my family.

Did you ever consider you might want to take a year off to investigate your other interests, go on a few medical missions, engage in something else that might cut your income for a year or two, or maybe even just flat-out retire?

Re: VA's, sure they can lose money. So can stocks and bonds.

BrodyInsurance said:   If im not mistaken less than around 10% make over 100k per year to begin with. Thus to start we have eliminated 90%. Then we need to find people with over 100k in income but also have 100k in their checking account. Most of these people if smart would have backdoor roth iras and other accounts such that with their other expenses they arent keeping 100k in checking but im sure there are some that do. We also need to eliminate people who make much more since their income is so high that none of this could possibly work. As we move up the income ladder, this number is smaller of course. Still when you add in these factors, it isnt going to be a large percent of people who could even do it successfully. Finally some of these strategies result in a poor investment. Keeping money in a deferred annuity will likely result in substantially less income in retirement and you need to weigh that vs the cost savings. When you add all this up, sure there is a small % who might benefit but it isnt a big %. Now if you are going to pick people with even less income such as 50k or something like that then i think its even more hard to find them with a bunch of money in checking.

You are pretty good at using stats in a meaningless way. Your stat is correct. Now, let's look at it in a more meaningful way. It is household income and not individual income that counts. We are now up to 15-20% instead of 10%. Now, get rid of all of the senior citizens on social security. They aren't sending children to school. Get rid of all of the 20 and 30 somethings. They don't have kids going to college. Get rid of all of those single moms in our cities. They aren't sending their children to college. Why does $100,000 need to be some sort of hard cut off? It's not as if those who make less than $100,000 get a full ride.

How about if we just look at the meaningful population? We are talking about a strategy for people who have children going to school and have countable assets. So, let's only look at people who have countable assets and are sending a child to college. Unless a family has a high enough income that their assets don't matter or low enough so that they are already given a free ride, almost everyone else can benefit.

For every $100 that can be moved, the EFC will drop by $5.60. There is absolutely no reason why doing this would have to result in poor investments.

For almost any realistic scenario that you can think of off the top of your head, some degree of asset shifting can be easily accomplished and will lower the EFC. For example, "Jim" makes $110,000. He is sending his kid to Princeton. The family has $100,000 in counted assets (checking/savings/529 plans/mutual funds). If they could just turn $40,000 of this into an uncounted asset, their EFC would drop by $2,000/year.

This is especially easy for any money sitting in the bank or any investments without a big unrealized gain or any 529 plans for another sibling.


Thanks for continuing to share information BJK and Brody, in spite of these posts like the above.

Another way to look at it, all of this info probably applies to > 50% of the users on this site. Granted, the population here is probably already a slice of the upper half of America, but that doesn't mean it is not relevant.

This discussion is really interesting to me, but I sense sort of two viewpoints. One is that we shouldn't invest in 529s, and there are other tricks. And the other is that at the income levels being discussed ($250K/year) those tricks are either untenable or undesirable, so the 529 is fine. Let's explore the options for people in that income range who can't do the more extensive "tricks" (retire, changing from W2 to 1099, etc). In other words, what options are likely to work for almost anyone:

1 - pay off mortgage (depends on school, but works for most schools)
2 - annuity
3 - get money into retirement accounts, including Roth IRA for child
4- shuffle assets between children so that college-age child doesn't have any

Anything else?

The following is a statement about higher ed finances in general and on average. Naturally it will not apply to every single institution:

I wouldn't forecast tuition to increase at double inflation indefinitely. Expenditures by higher ed institutions have been growing at ordinary inflation. State support has been declining, with the difference being made up in above inflation tuition. Since state support cannot decline forever (at the latest it will stop at zero), we can expect to reach a breakpoint where tuition will revert to ordinary inflation increases.

This is discounting the possibilities of state support increasing again and productivity advances in teaching. If either materializes we may see sub inflation growth in tuition.

DrDubious said:   dhodson said:   it also doesnt really apply to most people.

Those with significant assets typically have good income and since that income will count, hiding the amount in checking wont make a big difference. If you happen to have kids very late and are retired then possibly. Most 42 year olds are planning on having income.

Additionally variable annuity was mentioned and this could lose money. Other annuities typically would be guaranteed not to lose money except possibly in relationship to inflation.


So let the people who this doesn't apply to, or don't care, not worry about it. For those whom it may apply to, let them investigate and learn. I don't really care if these strategies don't apply for most people, I only care if it matters to me and my family.

Did you ever consider you might want to take a year off to investigate your other interests, go on a few medical missions, engage in something else that might cut your income for a year or two, or maybe even just flat-out retire?

Re: VA's, sure they can lose money. So can stocks and bonds.


i have no problem with the idea that those who can use the technique should learn about it. I have a problem pretending its valuable to most bc then many purchase things they shouldnt.

No i never considered taking time off for a variety of reasons mostly bc i like what i do but besides that for most people its very dangerous especially hoping that you still will have a job a year later. If you happen to be a physician then you still need the cme for your lic and when you return many of your patients likely would leave and other docs might not take you seriously to refer to you. One likely would be now stuck with locum or other such jobs where they are now payed less for the same level of work. Thus from a financial point of view, i dont see it as a good plan. If one wants to retire and can do so then one should.

the statement was inaccurate about VAs and i just corrected it. it is true stocks and bonds can lose money but the previous statement about not losing money on a VA was not.

Now I regret using the recent Gradsave deal to fund my existing 529 accounts. I think I'm stopping my 529 contributions for now (about $40k total currently in the accounts for two kids, 5 and 8) and will funnel the money into Roth IRAs. I think I'll have the ability to temporarily suspend my income during the key years. I wish there was to liquidate these accounts without penalty.

dewolfxy said:   This discussion is really interesting to me, but I sense sort of two viewpoints. One is that we shouldn't invest in 529s, and there are other tricks. And the other is that at the income levels being discussed ($250K/year) those tricks are either untenable or undesirable, so the 529 is fine. Let's explore the options for people in that income range who can't do the more extensive "tricks" (retire, changing from W2 to 1099, etc). In other words, what options are likely to work for almost anyone:

1 - pay off mortgage (depends on school, but works for most schools)
2 - annuity
3 - get money into retirement accounts, including Roth IRA for child
4- shuffle assets between children so that college-age child doesn't have any

Anything else?


As long as you're talking about FAFSA and not CSS, that's a solid list.

yep just change the order around some such as 3 number 1 and 1 number 2

i have no problem with the idea that those who can use the technique should learn about it. I have a problem pretending its valuable to most bc then many purchase things they shouldnt.

Why do you think that we are "pretending" that it is valuable to most? Most people do qualify for some aid and for those people turning countable assets into non countable assets will decrease their EFC. Nobody here is recommending any unsuitable purchases.

enc0re said:   The following is a statement about higher ed finances in general and on average. Naturally it will not apply to every single institution:

I wouldn't forecast tuition to increase at double inflation indefinitely. Expenditures by higher ed institutions have been growing at ordinary inflation. State support has been declining, with the difference being made up in above inflation tuition. Since state support cannot decline forever (at the latest it will stop at zero), we can expect to reach a breakpoint where tuition will revert to ordinary inflation increases.

This is discounting the possibilities of state support increasing again and productivity advances in teaching. If either materializes we may see sub inflation growth in tuition.


I would like to think that tuition inflation has to cap out eventually too, but I'm not confident it will do so. Tuition has been beating inflation for a long time, starting well before the current economic crash/slump/weak recovery. The fact that tuition inflation has been beating the investment returns of prepaid tuition plans necessitating a "premium" to buy in only makes it more disheartening.

BrodyInsurance said:   If im not mistaken less than around 10% make over 100k per year to begin with. Thus to start we have eliminated 90%. Then we need to find people with over 100k in income but also have 100k in their checking account. Most of these people if smart would have backdoor roth iras and other accounts such that with their other expenses they arent keeping 100k in checking but im sure there are some that do. We also need to eliminate people who make much more since their income is so high that none of this could possibly work. As we move up the income ladder, this number is smaller of course. Still when you add in these factors, it isnt going to be a large percent of people who could even do it successfully. Finally some of these strategies result in a poor investment. Keeping money in a deferred annuity will likely result in substantially less income in retirement and you need to weigh that vs the cost savings. When you add all this up, sure there is a small % who might benefit but it isnt a big %. Now if you are going to pick people with even less income such as 50k or something like that then i think its even more hard to find them with a bunch of money in checking.

You are pretty good at using stats in a meaningless way. Your stat is correct. Now, let's look at it in a more meaningful way. It is household income and not individual income that counts. We are now up to 15-20% instead of 10%. Now, get rid of all of the senior citizens on social security. They aren't sending children to school. Get rid of all of the 20 and 30 somethings. They don't have kids going to college. Get rid of all of those single moms in our cities. They aren't sending their children to college. Why does $100,000 need to be some sort of hard cut off? It's not as if those who make less than $100,000 get a full ride.

How about if we just look at the meaningful population? We are talking about a strategy for people who have children going to school and have countable assets. So, let's only look at people who have countable assets and are sending a child to college. Unless a family has a high enough income that their assets don't matter or low enough so that they are already given a free ride, almost everyone else can benefit.

For every $100 that can be moved, the EFC will drop by $5.60. There is absolutely no reason why doing this would have to result in poor investments.

For almost any realistic scenario that you can think of off the top of your head, some degree of asset shifting can be easily accomplished and will lower the EFC. For example, "Jim" makes $110,000. He is sending his kid to Princeton. The family has $100,000 in counted assets (checking/savings/529 plans/mutual funds). If they could just turn $40,000 of this into an uncounted asset, their EFC would drop by $2,000/year.

This is especially easy for any money sitting in the bank or any investments without a big unrealized gain or any 529 plans for another sibling.


nice garbage attack on the stats thing. Those were just an off the top of the head and not stats by the way since independent stats do have meaning in all the previous conversations.

now you didnt provide any actualy info on what % can benefit. I completely agree the high and the low ends are out but still the question is what percentage of people who arent in the high end of income (since income always counts) have countable assets that can be made to disappear. Where are all these people who arent high income who have 100k in their checking/savings/529/non retirement mutual funds.

I have no problem with the idea that IF people DONT have signficant income and IF they have countable assets then it could work. There just arent as many people fitting that situation.

jimmywalt said:   
For the one going in the fall..... He will get financial aid because his father doesn't have a dime to his name and will be doing the FAS report.


Wait - if you get a divorce you get to pick which spouse "counts" for FAFSA purposes?

With a very trusting/understanding spouse that could really open things up!

I have no idea why you would say that. The reality is that virtually everybody has countable assets and most people would qualify for aid if those assets didn't exist. As an example, a family making $200,000 with no countable assets and just one child would qualify for aid at Princeton.

One doesn't have to have $100,000 to benefit. Like I said, for every $100 that they can change to uncounted, their EFC will decrease by $5.60. To whatever extent one can get rid of their countable assets, it will usually help.



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