Even though I have a face for radio, I somehow got on TV to discuss
the 7 Mistakes Parents Make on the FAFSA (the Free Application for
Federal Student Aid). You can find the
video here.
If you want the information without having to look at my ugly mug, here are the main points regarding the FAFSA.
1.
File early: Often times, student aid is on a first come first served
basis. If you delay applying, you could miss out on student aid. The
deadline for the FAFSA is June 30th, but many states have different
deadlines. Maryland, for example, has a March 1 Deadline. Start the
FAFSA now even if you don't have your taxes done yet. You can estimate
these figures then finalize them when your taxes are done. Make sure you
get your taxes done as soon as possible. Don't wait until April 15th.
2.
File even if you think you won't get aid: many families with higher
incomes don't file the FAFSA because they believe they won't get any
aid. That is not always the case, especially if your child is looking at
a private school or you have more than one child in college.
3.
Pay down debt with savings: The FAFSA looks at your annual income (tax
return) and your assets. If you have money in a bank or non-retirement
investment account and you have credit card debt or an auto loan, pay
those debts off. This will increase the amount of aid you might receive.
Also, if you have been thinking of doing a home improvement or buy a
car, this is a great time to pay cash for those expenses to reduce your
assets for the FAFSA. Just make sure you don't use the FAFSA as an
excuse to buy a new car you really don't NEED.
4. Appeal aid
decisions: If you have a big one time tax item like a bonus or stock
option exercise, this will impact your eligibility for aid. However, you
can appeal your aid decision to the school stating that your income was
abnormally elevated due to this one time bonus or option exercise. The
school will often change the aid award.
5. Minimize tax items:
Since the FAFSA is based off your tax return, you need to do some
strategic tax planning. Some ways you can do this is avoiding big
capital gains, don't take distributions from retirement plans,
contribute the maximum to your retirement plans, utilize cafeteria plans
at work (FSA, insurances, etc.), and look at using Health Savings
Accounts for the annual deduction.
6. Get Assets out of Kids Name:
The FAFSA looks at the parents and child's assets and income. The
parents are expected to contribute 5.6% of certain assets to college
expenses while the student's rate is 20%. Move assets to the parents
name to increase your potential aid. If your child has a savings account
with substantial assets, open a 529 plan. The 529 can be owned by the
parent with the child as a beneficiary.
7. Don't make radical
changes to your assets: Many financial salesmen exist that push parents
to high commission products like annuities and permanent life insurance
to reduce their asset calculation on the FAFSA. It is true that
annuities and permanent life insurance balances are not included in the
FAFSA, but these instruments have material impacts on your future
retirement and tax situations. Often, I find the only one who really
benefits from major shifts like this are the salesmen.
Kirk Kinder, CFP® is the Founder of Picket Fence Financial,
a fee-only financial planning and investment management company
dedicated to saving folks from Wall Street. Picket Fence Financial does
this through a few different ways. One, our fee-only approach ensures
our advice is tailored to our clients needs and not driven by
commissions. Two, we minimize costs for clients by utilizing low cost
Exchange Traded Funds (ETF) and aligning our internal operations to keep
our company costs down (and passing this along to our clients). Third,
we offer a la carte planning, which means our clients decide how they
want to work with us. Rather than forcing clients into our model of
planning, we offer hourly, retainer, or asset management options (or a
combination thereof).
All information on this site are
the opinions of Kirk Kinder, CFP® and should not be construed as
investment, tax, estate or insurance advice. Please consult your own
specialist for personal assistance.
