Simplified Needs Test

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L1: Simplified Needs Test
I was born in 1980 and plan to retire in 2025, before my kids go away to college.
The Simplified Needs Test from the FAFSA has two requirements: income less than $50K and filing of 1040A or EZ.
So two questions:
1) can you take less than a calculated amount as your SEPP? So if my IRS-calculated number is $52K, for example, can I just set my SEPP withdrawals every year to $49K so I meet the requirements?
2) does anyone know if I have a 1099R for 72T, can I still file a 1040A?
This is still a few years down the road but trying to figure out if I should put my money into college savings (via 529 accounts) or into my personal savings account for use in early retirement to supplement my SEPP.
2018-04-20 19:08, By: BigGuy, IP: []

L2: Simplified Needs Test
You can use form 1040-A up to $ 100,000 of income. I suggest looking at page 13 of the related instruction book for the list of items that are included for filing a 1040-A, including the tax credits that you can claim on a 1040-A. (Go to
1099-R distributions are one of many forms reported on 1040-A. However, I doubt if you can file a 1040-A if you must also file a 5329 for exceptionn to the early distribution penalty.
I would not recommend your approach. I would have concerns that the way the government is going, I am leery that financial aid will still be around, or that it will not require consideration of retirement accounts in the calculation (such as a SEPP 72-T).
I would rather suggest that you do a front-loaded 529 for $ 75,000 for each child. That way all of the income and appreciation will never be taxed. On the other hand, all of the income and capital gains will be taxed, unless you keep your annual income in the 22% or lower tax bracket, in which case these tax rates are -0-. I have many clients who did this when kids were young, and by the time they went to college over $ 100,000 had accumulated TAX FREE to be used to pay for college costs.
Also, be careful, because FAFSA uses the calendar year for the SOPHOMORE year in high school (i.e. 2 calendar years before college, not in the calendar year before college, which was the case until a couple of years ago). We don’t know what the rules will be in 2025, and the new tax law EXPIRES in 2025 !!!!
Also, if you have low income years before then, I would consider doing ROTH CONVERSIONS, if you would be eligible.
I suggest you meet with a financial planner or tax professional to PLAN out all of your figures.
2018-04-20 20:26, By: dlzallestaxes, IP: []

L3: Simplified Needs Test
Thanks for the opinion. I do currently have 529s for each child loaded with about 3/4 of the expenses for 4 years at the local state school. As per your note on the FAFSA, myretirement date is planned such that it’s my oldest’s freshman year in high school to specifically avoid the 2 year look-back. “Unfortunately” my income is high, so any Roth conversions are out of the questionas long as I continue to work.
I do have concerns about the way tax laws are going, but I figure that’s out of my control so I should try to set myself up for success and roll with the punches if stuff changes.
2018-04-21 00:30, By: BigGuy, IP: []

L3: Simplified Needs Test
Confirmed that form 5329 is attached to only 1040 or 1040NR. Cannot attach to 1040A. Looks likecontinuing to contribute tothe 529’s it is! Thanks.
2018-04-21 00:34, By: BigGuy, IP: []

L4: Simplified Needs Test
You are very fortunate to have accumulated so much wealth at age 39, or will do so by age 45, that you can retire at least while your children go to college, if not for the rest of your life.
If you wanted to become creative, and worked for a company which has a 401-K, or set up your own company with a solo 401-K, then you could transfer your IRA to the 401-K. That would be the first step in clearing all of your IRAs.
Then you could start to do “BACK DOOR ROTH CONVERSIONS”. This can be done by making “NON-DEDUCTIBLE IRA CONTRIBUTIONS” (which have no income limit), and then a few weeks later do ROTH CONVERSIONS which would involve little income or growth. FYI, if you have significant balance in one or more IRA accounts, then form 8606 negates the benefit of this approach.
Another idea would be to continue to make 529 contributions, up to the state limit, even if they exceed the amount you consider that your children might need. Ultimately any amounts remaining in the 529s could be transferred to grandchildren, or cashed out in your retirement when you might have less income.
On a different aspect, I personally would not limit 529s to the amount needed for state universities. I firmly believe that we should allow our children to set goals to go to the best colleges that they can qualify to attend. Financial aid actually works backwards, and starts with the Family Contribution, which is calculated equally regardless of the applicable college applied to. Then, it is supposedly up to each college to determine a plan of scholarships, grants, and loans. Otherwise I believe that you are shortchanging your children.
2018-04-21 03:53, By: dlzallestaxes, IP: []

L5: Simplified Needs Test
“You are very fortunate to have accumulated so much wealth at age 39, or will do so by age 45, that you can retire at least while your children go to college, if not for the rest of your life.”
No doubt. My wife is also a saver and not a spender. I love my 14 year old car and our house is modest for our income level. But I will not deny that we were also exceptionally fortunate – my wife and I got married in 2007, and changed communities in 2007-2008, so we had just sold both of our homes at the peak and bought the new one just after the drop in values. We also were very conservatively invested during the 2008 crash in case the new jobs we got didn’t work out.The timing of everything could not have been more advantageous for us.
Thanks for the reminder on the back door Roth. I’ll have to keep that in mind rather than accumulate too much money in my non-tax advantaged account.We have been maxing out our 401k and Roth IRA contributions for years and for the last5 I’ve been putting any excess into 529’s. That’s another option to consider.
2018-04-21 16:02, By: BigGuy, IP: []

L6: Simplified Needs Test
You seem to be more informed than most people who post questions. Maybe you should help answer questions on this website, or set up a practice consulting on SEPP 72-T since there are so few financial planners and tax practitioners who are knowledgeable in this area !!!
2018-04-21 16:13, By: dlzallestaxes, IP: []

L7: Simplified Needs Test
Sounds like a goodjob for after I retire! My day job has me traveling internationally every other week, so side gigs are tough to squeeze in. Thanks again.
2018-04-22 16:24, By: BigGuy, IP: []