Learn from Spaugh Dameron Tenny's Shane Tenny, CFP®, and Will Koster, Associate Planner in this 4-part series. Read the full blog here: http://bit.ly/2melHkC
Transcript:
WILL KOSTER: Welcome back. This video will address assessable versus non-assessable assets and income. And this topic is very important when calculating your expected family contribution. If you don't know what we're talking about, when we say expected family contribution, take a minute. Go back to our last video and watch that and then come back to us.
SHANE TENNY: Sure. So what does assessable versus non-assessable mean? Basically, when you're filling out the FAFSA to calculate your expected family contribution, there are some assets and income that count in the formula and some that are excluded. So, for example, assessable assets are clearly the things that count and include things like savings in a money market or checking account investment accounts. Besides your 401k and any savings in a college account or 529.
But there are some pretty significant assets on most people's balance sheets that actually get excluded. Things like the value of your house or money in your 401k or other retirement accounts and even savings in annuities or cash value life insurance are excluded. So that's the asset side of the equation. Well, what about income?
WILL KOSTER: Income is more heavily weighted in the expected family contribution calculation, so some small tweaks can make a big difference. But you also want to keep in mind the impact that will have on your tax burden and weigh that in the difference they will have in the expected family contribution.
SHANE TENNY: Okay. And so with the income side sounds a little more intricate and like there's definitely going to be benefits of planning ahead for a couple of years.
WILL KOSTER: Yeah, no doubt the devil is in the details. For example, if you defer money to a retirement plan such as a 401k, well, that may not feel like income to you in a given year. It does count in your expected family contribution. Another detail is if you are planning to use cash value from a life insurance policy while you take a withdrawal from the policy, it counts as assessable income by taking a loan from the policy does not count as assessable income.
SHANE TENNY: Okay, so there's definitely a lot of details going on with this particular topic.
WILL KOSTER: Yeah, no doubt. And the most important thing to remember in all of this is that small tweaks and planning ahead can make a big difference, especially when extrapolated over four years of college and maybe multiple children.
SHANE TENNY: Yep. So hopefully this helps your understanding in any conversation that you might have with your trusted advisor. But as always, if you don't have one or you'd like a second opinion, by all means, don't hesitate to reach out to us. We'll be happy to take your call and answer any questions we can to see how we can best help you and your family. Thanks for watching.