What to Avoid During a Financial Aid Base Year | College Coach Blog
Last week we explained the financial aid base year and the upcoming shift to using the prior-prior year to calculate a family’s ability to pay for college. As we foreshadowed, there are specific financial maneuvers that families may wish to avoid making during a base year, as they will artificially inflate a parent’s or a student’s income.
Financial Moves to Avoid During a Base Year
- Selling stock or cashing in stock options that will result in a large capital gain. Can you try to make these sales before or after the sophomore-to-sophomore year time frame?
- Making a withdrawal from an IRA or other retirement account. These withdrawals must be reported as income on the financial aid application and can make your income look unusually high.
- Receiving an atypically high bonus. Can you defer the bonus to a later year or request another type of benefit in lieu of a cash bonus?
- Having someone outside the student’s custodial household (like a non-custodial parent or a grandparent) pay the college bill. Gifts or bills paid on the student’s behalf from outside the custodial household must be reported as student income on the financial aid application. If divorced parents are going to split the college bill, it may benefit them for the custodial parent to pay for freshman and sophomore year (base years, based on last week’s discussion of the shift to the prior-prior tax year base), while the noncustodial parent pays for junior and senior years (non-base years). That way, non-custodial parent payments never inflate the student’s income.
- An unusually high capital gain, retirement withdrawal, or bonus did artificially inflate your base year income.
- You’ve lost your job since your base year, and your current income is significantly lower.
- You received child support in the base year, but that support will end when the student turns 18 or graduates from high school in the near future.