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cheapdad00 said:   There are some on this board who have more creative ideas on how best to perform that function and not be in violation of any laws.

You mean like moving the cash to your business, having the business make a major purchase, claiming the accelerated depreciation and passing the tax loss thru to ones personal income?

stamfordmike said:   But with college 10 years away and me not having saved a penny (HSA and 401K is maxed and no mortgage on house were the priorities first).

Sort of intellectual laziness, there is no particular reason why someone making $250k should have to pay for college at one of the top 25 colleges.

Unless, of course, they insist on doing counterproductive stuff like paying off their mortgage.

529s are God's way of making sure you pay full MSRP for college.

It's all very intriguing and mysterious, but if you have money you have to do something with it. Is it better to pay off a mortgage or put it in your checking account? Is it better to save in a 401k or put it in your checking account? If you are not a business owner and you have maxed out everything and have paid off your primary mortgage, what is the next step? Where do you put the money then?

All it takes to be a business owner is to start a business.

If you want to have equity in your house, and have financial aid formulae eat away at it by 5.6% per year, you have that right.

Or you could refinance at 3.5% (tax deductible), move the money into a shielded investment, avoid the 5.6% and keep whatever the reinvested funds earn.

It's not a binary world filled with only binary choices.

edit: even if the reinvested funds do not make a cent in interest, you can still make 2.5% after tax merely by shifting the money out of the home equity.

BEEFjerKAY said:   cheapdad00 said:   There are some on this board who have more creative ideas on how best to perform that function and not be in violation of any laws.

You mean like moving the cash to your business, having the business make a major purchase, claiming the accelerated depreciation and passing the tax loss thru to ones personal income?


Is there any particular variety of business or major purchase that is more suitable than others to get in and out of without taking on crazy amounts of risk that it could all blow up? I don't know much about using gold-plated earth movers on backyard alpaca farms but it feels like it might not be worth the risk of gold prices dropping, tax laws changing, Alpaca plagues, etc.

BEEFjerKAY said:   All it takes to be a business owner is to start a business.

If you want to have equity in your house, and have financial aid formulae eat away at it by 5.6% per year, you have that right.

Or you could refinance at 3.5% (tax deductible), move the money into a shielded investment, avoid the 5.6% and keep whatever the reinvested funds earn.

It's not a binary world filled with only binary choices.

edit: even if the reinvested funds do not make a cent in interest, you can still make 2.5% after tax merely by shifting the money out of the home equity.


Extremely misleading. Last time we spoke about this you posted this and pointed out 5-10 things that I could supposedly do. Except I couldn't do any of them for a variety of reasons. In the end there are possibly some things one can do if they make high income that will hide assets or make it look like there is no money, but depending on how and where you put money, your work situation, etc. you may be able to do none of those things.

BEEFjerKAY said:   All it takes to be a business owner is to start a business.

If you want to have equity in your house, and have financial aid formulae eat away at it by 5.6% per year, you have that right.

Or you could refinance at 3.5% (tax deductible), move the money into a shielded investment, avoid the 5.6% and keep whatever the reinvested funds earn.

It's not a binary world filled with only binary choices.

edit: even if the reinvested funds do not make a cent in interest, you can still make 2.5% after tax merely by shifting the money out of the home equity.


You have me confused here unless you aren't talking about FAFSA. For FAFSA purposes, home equity of a primary house is not an asset, so why would one take money out.

The normal advice is to pay off the house.

Ex. "Jim" owes $200,000 on his $700,000 house. He takes $200,000 from savings, mutual funds, etc. and pays off his house. For FAFSA purposes, he has just lowered his assets by $200,000.

Can you explain further? Thanks.

BrodyInsurance said:   BEEFjerKAY said:   All it takes to be a business owner is to start a business.

If you want to have equity in your house, and have financial aid formulae eat away at it by 5.6% per year, you have that right.

Or you could refinance at 3.5% (tax deductible), move the money into a shielded investment, avoid the 5.6% and keep whatever the reinvested funds earn.

It's not a binary world filled with only binary choices.

edit: even if the reinvested funds do not make a cent in interest, you can still make 2.5% after tax merely by shifting the money out of the home equity.


You have me confused here unless you aren't talking about FAFSA. For FAFSA purposes, home equity of a primary house is not an asset, so why would one take money out.

The normal advice is to pay off the house.

Ex. "Jim" owes $200,000 on his $700,000 house. He takes $200,000 from savings, mutual funds, etc. and pays off his house. For FAFSA purposes, he has just lowered his assets by $200,000.

Can you explain further? Thanks.


CSS Profile asks for home equity.

For someone like the OP, unless income is going to drop at the time of college, 529 plans are about as much break as he/she is going to get. With high income you are always paying msrp type rates.

cheapdad00 said:   OP, you need to reduce your income in the years leading up to your children starting college. Are you a wage slave or a business owner? If the second, there should be some creative way to take lesser salary and leave the profits in the business in order to qualify for more financial aid. There are some on this board who have more creative ideas on how best to perform that function and not be in violation of any laws.

That is the FUNNIEST thing I've ever read in my life!

Lower your wages so that you can get some free money.

Let me check the math on that.... $250K per year --- go down to $80K per year ($170K less) times 4 years is $680K so that your child might get some funding. The kid would have to get $680K or more to make your crazy idea even remotely make any sense.

That's like if a person says "I don't want a raise because I'll pay more in taxes".

I often say this in the Finance thread............ "Don't take advice from broke people. They are broke for a reason!"

Jimmy, So do you not think that it is possible for a business owner to do things to manipulate income that won't hurt him financially?

DrDubious said:   BrodyInsurance said:   BEEFjerKAY said:   All it takes to be a business owner is to start a business.

If you want to have equity in your house, and have financial aid formulae eat away at it by 5.6% per year, you have that right.

Or you could refinance at 3.5% (tax deductible), move the money into a shielded investment, avoid the 5.6% and keep whatever the reinvested funds earn.

It's not a binary world filled with only binary choices.

edit: even if the reinvested funds do not make a cent in interest, you can still make 2.5% after tax merely by shifting the money out of the home equity.


You have me confused here unless you aren't talking about FAFSA. For FAFSA purposes, home equity of a primary house is not an asset, so why would one take money out.

The normal advice is to pay off the house.

Ex. "Jim" owes $200,000 on his $700,000 house. He takes $200,000 from savings, mutual funds, etc. and pays off his house. For FAFSA purposes, he has just lowered his assets by $200,000.

Can you explain further? Thanks.


CSS Profile asks for home equity.


I am aware of that, but don't the vast majority of schools use FAFSA? That is why I was asking for a clarification.I am pretty confident that BEEFjerKAY knows more about the financial aid side of things than I do.

Obviously, the choice of schools could alter the strategy. Additionally, some of the schools that use CSS Profile limit the amount of home equity that they will count to a multiple of income. Thus, lowering income lowers countable assets.

jimmywalt said:   

That is the FUNNIEST thing I've ever read in my life!

Lower your wages so that you can get some free money.

Let me check the math on that.... $250K per year --- go down to $80K per year ($170K less) times 4 years is $680K so that your child might get some funding. The kid would have to get $680K or more to make your crazy idea even remotely make any sense.

That's like if a person says "I don't want a raise because I'll pay more in taxes".

I often say this in the Finance thread............ "Don't take advice from broke people. They are broke for a reason!"


Big difference between how much money you make and what your income is for a finaid form.

OP, I would highly recommend that you 1) think of a business you'd like to start in the next 5 years and 2) encourage your oldest child to take a year or two to "find themselves" before going to college. And do some exhaustive searching on this site for related threads, I learned a ton through those.

BrodyInsurance said:   DrDubious said:   BrodyInsurance said:   BEEFjerKAY said:   All it takes to be a business owner is to start a business.

If you want to have equity in your house, and have financial aid formulae eat away at it by 5.6% per year, you have that right.

Or you could refinance at 3.5% (tax deductible), move the money into a shielded investment, avoid the 5.6% and keep whatever the reinvested funds earn.

It's not a binary world filled with only binary choices.

edit: even if the reinvested funds do not make a cent in interest, you can still make 2.5% after tax merely by shifting the money out of the home equity.


You have me confused here unless you aren't talking about FAFSA. For FAFSA purposes, home equity of a primary house is not an asset, so why would one take money out.

The normal advice is to pay off the house.

Ex. "Jim" owes $200,000 on his $700,000 house. He takes $200,000 from savings, mutual funds, etc. and pays off his house. For FAFSA purposes, he has just lowered his assets by $200,000.

Can you explain further? Thanks.


CSS Profile asks for home equity.


I am aware of that, but don't the vast majority of schools use FAFSA? That is why I was asking for a clarification.I am pretty confident that BEEFjerKAY knows more about the financial aid side of things than I do.

Obviously, the choice of schools could alter the strategy. Additionally, some of the schools that use CSS Profile limit the amount of home equity that they will count to a multiple of income. Thus, lowering income lowers countable assets.


I'm sure more schools use FAFSA, but there are a good number of expensive ones (which are the ones that principally matter here) that use CSS including some of the ivy.

https://profileonline.collegeboard.org/prf/PXRemotePartInstituti...

I think that the main take away here is that there are many things that people can do to lower the amount that they need to pay. It's not everyone who can benefit, but it is certainly most people. What stops most people is a combination of laziness and ignorance. The ignorance often stems from the laziness.

Here is a simple example for a family of three children looking only at their 529 plans. "Jim" wants to fully fund education for his three kids. He has children ages 18, 16, and 12. He is the owner of a 529 plan for each child and each child has $200,000 in his plan. When the oldest goes to college, the 529 plans will count as a $600,000 asset. At 5.6%, these 529 plans increase the EFC for that first year of college by $33,600.

Don't you think that there are some ways to lower this substantially AND still have this money available to pay for school? There's lots of ways, but here's one without lots of hoops. Let's assume that each year will cost $50,000 and future growth will match school inflation.

Let the grandparents have enough money in 529 plans to pay for the senior year (actually reimburse the child or gift to the parent after payment is done for the senior years). The grandparent owned 529 plan would have $150,000. For the two younger children, UTMA 529 plans can be used (or use UTMAs and turn them into UTMA 529 plans at a later date). The parent owned 529 for the oldest child will still have $150,000.

With very little effort, the EFC has dropped from $33,600 to $8,400 and the exact same $200,000 is available for school and it is continuing to grow tax deferred and tax free if used for QHEE.

If that is an example of what can be done with little effort other than knowing who should own what, there must be lots that can be done with a little more effort. Imagine if the person simply knew what to own.

There are also lots of things that can be done that don't deal directly with financial aid formulas. For example, I have clients who work for Johns Hopkins University. Many of them took jobs there for the college education benefit. Their child can go to any school in the country for half price up to half the cost of JHU admission. Another example with JHU is that any child who graduates from a Baltimore City public school and gets admitted to Hopkins, gets in for free.

in the current OP situation however, he/she still has over 250k of income and thats gonna negate the grandparent ownership

if you are talking about someone other than the OP who has much more modest income then such things can be done with more success.

dhodson said:   in the current OP situation however, he/she still has over 250k of income and thats gonna negate the grandparent ownership

if you are talking about someone other than the OP who has much more modest income then such things can be done with more success.


I wasn't talking about any person in particular. I'm just pointing out that there is usually things that people can do that will lower the amount that they pay for college education.

So is it not worth setting up 529 plans for my 2 kids with grandparents and aunt. After reading all these great posts I was thinking of just setting them up with my parents and sister, that would give me 3 529 plans that wouldn't go towards the EFC which has been mentioned. But dhodson says my income level will still make it not worth it, a little confusing. I'm also not a business owner nor have any interest in setting one up, my current life is complicated enough (in a good way with 2 young boys keeping me very busy).

With all the stategies that people will tell you about, keep in mind income counts. Some "advisors" try to encourage folks that their strategy will reduce the expected contribution but fail to mention that given the high income, it wont matter and thus one is wasting money on something they wouldnt otherwise do or purchase.

dhodson said:   With all the stategies that people will tell you about, keep in mind income counts. Some "advisors" try to encourage folks that their strategy will reduce the expected contribution but fail to mention that given the high income, it wont matter and thus one is wasting money on something they wouldnt otherwise do or purchase.

Which is why figuring out a good implementation for BJK's outline could be so beneficial for the right person. If you can make a big enough chunk of income "disappear," it might actually make sense to engage some of those other strategies to make the assets "disappear."

I have no doubt the income strategies exist. I would rather burn a little brainpower well in advance to figure them out than find out too late the colleges can and will strip high-income folks bare due to a combination of institutional hubris, government policies making tuition rise, and misguided sense of justice on both ends.

stamfordmike said:   I'm also not a business owner nor have any interest in setting one up, my current life is complicated enough (in a good way with 2 young boys keeping me very busy).

Fair enough, but then don't complain later that you're paying sticker price for a $50,000 school when your out of pocket could have been a fraction of that for a little additional work. Starting a business doesn't have to entail 40 hour work weeks.

ryanstruve said:   stamfordmike said:   I'm also not a business owner nor have any interest in setting one up, my current life is complicated enough (in a good way with 2 young boys keeping me very busy).

Fair enough, but then don't complain later that you're paying sticker price for a $50,000 school when your out of pocket could have been a fraction of that for a little additional work. Starting a business doesn't have to entail 40 hour work weeks.


Or, to put it more cynically, don't complain about footing the bill for your neighbor's kid at the same school with the same base salary because they screwed around with their money and didn't save like you did.

DrDubious said:   dhodson said:   With all the stategies that people will tell you about, keep in mind income counts. Some "advisors" try to encourage folks that their strategy will reduce the expected contribution but fail to mention that given the high income, it wont matter and thus one is wasting money on something they wouldnt otherwise do or purchase.

Which is why figuring out a good implementation for BJK's outline could be so beneficial for the right person. If you can make a big enough chunk of income "disappear," it might actually make sense to engage some of those other strategies to make the assets "disappear."

I have no doubt the income strategies exist. I would rather burn a little brainpower well in advance to figure them out than find out too late the colleges can and will strip high-income folks bare due to a combination of institutional hubris, government policies making tuition rise, and misguided sense of justice on both ends.



Well when you figure out ones worth doing then let me know.

After using strategies suggested by beef and brody to present you financial situation in the worst (best for financial aid) manner, input the numbers into Princeton's model. Princeton may have the most generous financial aid in the country; so if Princeton won't give you aid, there is a good chance that nobody else will either. If you aren't going to be eligible for financial aid, it makes sense to utilize programs that save taxes like 529 plans.


Princeton

Although some, if not all, Ivys will match aid, Princeton will probably offer the best initial aid package. Since the Ivys don't offer academic or athletic scholarships, other private schools and many state schools may be less expensive for higher income families. Using the same numbers, the net cost was $27,180 for Princeton and $46,750 for Dartmouth. YMMV.


Ivy League Financial Aid Compariosn

dhodson said:   DrDubious said:   dhodson said:   With all the stategies that people will tell you about, keep in mind income counts. Some "advisors" try to encourage folks that their strategy will reduce the expected contribution but fail to mention that given the high income, it wont matter and thus one is wasting money on something they wouldnt otherwise do or purchase.

Which is why figuring out a good implementation for BJK's outline could be so beneficial for the right person. If you can make a big enough chunk of income "disappear," it might actually make sense to engage some of those other strategies to make the assets "disappear."

I have no doubt the income strategies exist. I would rather burn a little brainpower well in advance to figure them out than find out too late the colleges can and will strip high-income folks bare due to a combination of institutional hubris, government policies making tuition rise, and misguided sense of justice on both ends.



Well when you figure out ones worth doing then let me know.


If I do, no problem, provided you're not a competitor...although you do of course realize what the asset side will likely entail...

I know which one doesn't work

It still doesn't decrease income from the admissions perspective although one typically is substantially more poor later on bc of the purchase.

I popped in our W2 income and completely impoverished all our assets and student assets (except for retirement accounts and primary home). I even put two kids in college at the same time, which will be true for two years.

I got this result, supporting the assertion that if one can hide liquid (non-retirement) assets entirely, even in the 33%+ federal tax bracket there is legitimate hope for grants:

I. Princeton's Estimated Costs for 2013-2014
Tuition $40,170
Room 7,220
Board 5,860
Books and Personal Expenses 3,500
Travel 1,100
-------
Total Estimated Student Budget $57,850


II. Your Estimated Family Contribution
Parents' Contribution $31,300
Student's Expected Summer Savings 1,530
Student's Asset Contribution 0
------
Total Estimated Family Contribution $32,830



III. Your Estimated Aid Package is $25,020
Grant Funds $22,120
Student Loans 0
Campus Job 2,900
------
Total Estimated Aid $25,020


So: I either need to plow my cash into a very expensive business in 8 years (and pay capital gains taxes on all those mutual funds), or plow all my cash into a ridiculous, oversized house.

My issue with these strategies is that a lot of them seem like hypotheticals... I feel like we don't have many that chime in with proven success stories.

Unlike Princeton, many schools consider home equity in their financial aid calculations. I would look at Princeton's estimate as an upper limit of potential aid and not as the most likely scenario.

jimmywalt said:   cheapdad00 said:   OP, you need to reduce your income in the years leading up to your children starting college. Are you a wage slave or a business owner? If the second, there should be some creative way to take lesser salary and leave the profits in the business in order to qualify for more financial aid. There are some on this board who have more creative ideas on how best to perform that function and not be in violation of any laws.

That is the FUNNIEST thing I've ever read in my life!

Lower your wages so that you can get some free money.

Let me check the math on that.... $250K per year --- go down to $80K per year ($170K less) times 4 years is $680K so that your child might get some funding. The kid would have to get $680K or more to make your crazy idea even remotely make any sense.

That's like if a person says "I don't want a raise because I'll pay more in taxes".

I often say this in the Finance thread............ "Don't take advice from broke people. They are broke for a reason!"


It's more complicated than a simple math problem though.

OP makes $250K per annum now. How hard does he have to work for that $250K? Is his industry sustainable, so that in 10 years he will still be making the same or more, or is it a bubble industry that may not be flourishing in 10 yrs. After working in his career for 10 more years, is he ready for a break/burned out - can a severance be arranged, take a few years off to travel, recuperate, etc. Will his company want him in 10 years, or would they want someone 15 years his junior who they could pay a third as much? If he can time that then he would legitimately be income poor.

What is OP's line of work? Can he leave his current company and go consult, having his clients pay his business and then taking the bare minimum in salary to sustain his life in order to maximize financial aid, then after college is over, start taking aggressive distributions of funds held in the business.

wilked said:   My issue with these strategies is that a lot of them seem like hypotheticals... I feel like we don't have many that chime in with proven success stories.

When you look at something like the FAFSA, you can see that home equity simply doesn't count. Put $300,000 from your mutual funds into your home and it disappears.

Annuities don't count. Put $300,000 from your mutual funds into an annuity and it disappears.

Assets owned by other children don't count.

There is so much stuff that isn't "hypothetical". The challenge is that the we have no idea what the rules will be in the future.

How about if we save for college in parents roth ira account instead of 529.. you can take out tax free withdrawal for college. In my state( MA) there is no state tax benefits.

nk42 said:   How about if we save for college in parents roth ira account instead of 529.. you can take out tax free withdrawal for college. In my state( MA) there is no state tax benefits.

Then you have no Roth IRA left for you own retirement.

mikef07 said:    but depending on how and where you put money, your work situation, etc. you may be able to do none of those things.

So then, change where you put your money? Or change your work situation?

Sorry if I have no magical powers.

wilked said:   My issue with these strategies is that a lot of them seem like hypotheticals... I feel like we don't have many that chime in with proven success stories.

You want people to be tacky and brag?

This game is a lot like the tax assessment appeal thread. The only reason it works is because not every one does it.

I have to work hard for my $ and in 10 years even harder as they'll be younger kids who can do my job for probably half the pay and benefits, it's finance so I don't know if it's a bubble but it surely cycles and I'll most likely be working into my mid 60's. I live in Fairfield County, which is it's own bubble and while Obama thought I was rich (he moved to $450 recently) I'm really not. But this goes all off topic. Let me ask my OP in a different but more direct way.

What I'm asking for is a FW parent who has opened a 529 plan for the last 10-15 years and have actually made $ on the account, with the high fees, the limited options and the fact that you can only change your options once a year, I just wonder if the tantalizing tax free earnings end up being wasted in the end because if I look at historical returns, you sort of end up in the same place. For example what if I wanted to pull my $ out of the market in 2008, I'd have to wait a whole year to put it back in the market because I only can make a change once a year. But again everyone says they have a 529 plan but do they really think as their kid is entering college (in the last few years) that they say to themself "Wow I'm sure glad I invested in a 529 plan, it was a great decision, I'm glad I did it.

psychtobe said:   I popped in our W2 income and completely impoverished all our assets and student assets (except for retirement accounts and primary home).

Run it again with your home equity at zero, which is achievable either thru refi or other shens.

Keep in mind, even with the number you generated, you are only scratching the surface.

Your enemies are, in no particular order:
1. W-2 income
2. Home equity
3. 529 and other unshielded asset accumulation vehicles

You don't need to have it permanently shielded. Just for a multi-year period (which does rule out some strategies) and particularly during the year in which your child enters their senior year of high school.

BEEFjerKAY said:   mikef07 said:    but depending on how and where you put money, your work situation, etc. you may be able to do none of those things.

So then, change where you put your money? Or change your work situation?

Sorry if I have no magical powers.


Situations change. There are not many $250K+ jobs floating around so it isn't as easy as that. Take into account what makes sense from a career standpoint, employee regulations, contract stipulations, etc and it isn't that simple. We have far too much money now to hide it so to speak (to the point of looking broke) and not to mention things change over time. 10 years from now no one knows what any school will consider assets and/or money.

Paying houses off, putting it into annuities might fit the bill for schools, but prohibits other long term plans that are equally important and possibly more lucrative. Life throws tons of things at you and at this time your suggestions from a previous thread (while helpful and I am grateful) just don't work right now. Maybe they do in the future, but it isn't as simple as "just hide your assets and/or money." In the end if we net out more by not hiding it even having to pay for school then so be it. We have a long term plan that we know works as of today so for now money goes into the 529.

If paying for school does not prohibit our long term plans and allows us to achieve our goals I can live with that. If it doesn't then possible large change need to be made.

ETA: As an executive now I have 0% chance that my company would 1099 me, not to mention certain states have regulations on who they can 1099.

cheapdad00 said:   Can he leave his current company and go consult, having his clients pay his business and then taking the bare minimum in salary to sustain his life in order to maximize financial aid, then after college is over, start taking aggressive distributions of funds held in the business.

Or can he stay at his current company, but change from W-2 to 1099 contractor with his current company as his primary, but not sole, employer?

For a group that usually knows how to squeeze two dimes out of a nickel, there's a surprisingly large blind spot when it comes to college financial aid.

BEEFjerKAY said:   psychtobe said:   I popped in our W2 income and completely impoverished all our assets and student assets (except for retirement accounts and primary home).

Run it again with your home equity at zero, which is achievable either thru refi or other shens.

Keep in mind, even with the number you generated, you are only scratching the surface.

Your enemies are, in no particular order:
1. W-2 income
2. Home equity
3. 529 and other unshielded asset accumulation vehicles

You don't need to have it permanently shielded. Just for a multi-year period (which does rule out some strategies) and particularly during the year in which your child enters their senior year of high school.


According to Princeton, they do not count home equity in a primary residence.



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