How a Millionaire Retiree Could Get as Much Aid for College as Someone Who’s Broke

Before we start, a couple disclaimers

  • I am not some kind of FAFSA professional. I’m merely a guy (who doesn’t even have any kids) who reads the relevant documents
  • I will be discussing how to get a zero Expected Family Contribution (EFC), but that doesn’t guarantee a zero out of pocket cost
  • Some colleges (particularly the expensive ones) do not use the FAFSA formulas
  • Some colleges do use the FAFSA formulas but practice “gapping”, which means that they acknowledge you should only pay $X according to FAFSA but don’t provide enough aid, meaning you have to pay more than $X
  • I’m sure that some readers will be disappointed that I am writing a post that informs¬†how wealthy individuals could get a lot of aid when they clearly do not need it. And that’s certainly true. But now because of my post you know that this problem exists, and you can lobby for change.
  • This content was based off of a couple threads at the Mr Money Mustache forums involving madamwitty, Sol, DoubleDown, teen persuasion, ¬†myself, and some others

The Free Application for Federal Student Aid (FAFSA) has this interesting loophole that most people aren’t aware of–one that potentially allows millionaire retirees’ children to go to college for free. I will be focusing on dependent students for this post.

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I Have Unrealized Long Term Capital Gains!

Hello everyone!

It’s been a while since my last post. I’m the type of person that needs a routine to get stuff done. The day I break that routine, essentially nothing gets done until I start it again.

I think my goal of one post a day was far too much, so I’m changing it to 30 minutes a day. Which probably means one post every couple days, but we’ll see how it goes.

I have several mistakes in my previous posts that I will correct tomorrow. Today my objective is just to get back into the routine of writing blog posts.

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How to Properly fill out a W-4 (Paycheck Withholding Form)

Whenever you start a new job, you are required to fill out a W-4, which will instruct your employer how much to withhold from your paycheck in taxes. Taxes are withheld from your paycheck because technically, you are supposed to pay your taxes (whether it is through withholding or estimated tax payments) in a timely manner (not all at the end of the year). The W-4 gives you two ways to adjust your tax withholding: claim allowances, which reduce the taxes withheld from your paycheck, and request additional money be withheld.

Now if you are single, have only one job, do not itemize your deductions, have no other source of income, and start the job at the beginning of the year, the questionnaire on the W-4 will probably result in the correct amount of tax withheld (recall that you want to end up with a refund of a big fat zero).

However, if you don’t meet all of these conditions, your withholding will almost certainly be wrong. But there is a way to calculate the correct amount of withholding! I’ll show you how through example.

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Dollar Cost Averaging vs Lump Sum Investing

You can find many articles and blog posts on dollar cost averaging vs lump sum investing. This discussion is only relevant when you have a large lump sum that you want to invest, which generally occurs either when you are starting investing, or you receive a windfall from say an inheritance.

Lump sum investing – You invest the entire lump sum according to your Investment Policy Statement (IPS).

Dollar cost averaging – You invest your lump sum over a period of time, typically 6-12 months.

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My April Vacation to Korea and Japan Booked with Miles!

I’m going to interrupt this stream of finance oriented posts with the details of my award ticket for my upcoming vacation to Japan and Korea in April. One of the major things I want to do when I’m financially independent is travel the world (and keep the costs down while doing it). So “travel hacking” is one of the things that I have been strategizing for the past couple months, and now I have finally booked a major flight using miles (I have booked a short domestic flight on United before, but that’s not that exciting).

“Travel hacking” is the act of substantially reducing the costs of a trip through various means. The most common way is to utilize credit card signup bonuses – typically you are required to spend $1000-$3000 in the first three months after approval of certain credit cards to get the bonus. For higher end cards, this bonus can be 50,000 miles (or sometimes, even more). Sometimes you can get miles from bank accounts (though this is somewhat rare, and not used as often). Using credit card signup bonuses for airline miles and hotel points is the common way that people engage in travel hacking.

So today I’m going to explain how I got the miles I used for the flight, how much that cost me in both money and time, and some technical difficulties I had in booking.

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How To Avoid Capital Gains Tax

[Edited 01/30/2017 to clarify how much can be deducted for donating securities to charity]

Recall that when you sell an asset, you owe capital gains taxes on the difference between your cost basis and the sale price. There are, however, at least three ways capital gains taxes can be avoided (I’m sure there may be more, but these are the ones I am aware of)

  • If the asset is a stock, mutual fund, or ETF, and you’ve held it for at least a year, and you are in the 0% long term capital gains bracket, you don’t owe any tax on the sale. Of course, this requires you to be in the 0% long term capital gains bracket, which you may not be.
  • Donate the stock, mutual fund, or ETF to charity. Of course, this is only really beneficial if you were going to donate anyway.
  • Leave the asset to your heirs in your will. Neither your estate nor the heirs will owe any capital gains taxes.

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Do Your Taxes Yourself

[I updated an earlier post on IRAs to mention one of the most important characteristics of Roth IRAs – early withdrawal of contributions without penalties or taxes].

Almost all Americans should do their taxes themselves. Many people just have wage income and some bank interest, which is incredibly simple to file. Some people all capital gains and qualified dividends to that, which isn’t that much harder. A couple of tax credits can get hairy, but for the most part, people should do their taxes themselves, by hand, without any software. Now I do recommend using software to check your work (so long as you can find free software that will handle your tax situation). But you should do it by yourself by hand first. I have two major reasons for this recommendation

  1. If you just mindless answer the questions asked by tax software, you don’t learn the tax code, which means you can’t plan ahead
  2. You can outsmart the tax software and get a better refund. I’ve done this before, and will continue to do this for every single year I am a graduate student.

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