Cashing out IRA to become eligible for food stamps? - Mothering Forums
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#1 of 23 Old 03-04-2008, 11:26 PM - Thread Starter
 
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Ok, hear me out...

were it not for my IRA, the online calculator suggests I'd be eligible for $452/month in FS.

I'm a newly separated, single, student mama. I'm taking the medical school prerequisites, and if I am successful and get into med school, I will be a student for at least the next 6 years. I currently work VERY p/t, 2-3 hours/week for a professor. I'm unlikely to have any sort decent-paying job during the time I'm a student b/c of the demands of my program and all the other stuff one has to do to prepare for applying to med school (research, MCATs, etc).

My IRA has less than $10K, I'm thinking just shy of $9K (I'd have to check). I have $40K+ in a 401k which apparently will not affect my eligibility.

My family is helping with housing, bills, etc., but FS would be an ENORMOUS help. I will get child support but not much for this area (high cost of living) b/c he doesn't make much.

So...is it a crazy idea?
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#2 of 23 Old 03-04-2008, 11:49 PM
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I don't understand why a 401(k) would be handled differently from an IRA, since you have the same penalties for cashing out. If the 401(k) doesn't affect eligibility, I'd contact someone in person -- either govt official or a social services organization that would know how to advocate on your behalf -- to get a more expert opinion before taking the hit and cashing out the IRA.

THe other question is what you would do with the proceeds of the IRA -- from my brief review of FS eligibility, you can only have $2K in a bank account, and your car has to be below a certain value. The worst outcome would be that you cash out the IRA, pay the penalty, and end up sabotaging your eligibility anyway.

Last thing to consider: how long would you remain eligible for FS? Can you get FS while attending med school? (Just my ignorance here.) Would the money from FS actually make up for the penalty you pay on cashing out the IRA? If you're only getting FS for a short period of time, probably not. (I'm deliberately ignoring the loss of the tax-free growth on the IRA, which is non-trivial. But you and your kids have to eat now, for the tax-free growth to mean anything later on.)
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#3 of 23 Old 03-04-2008, 11:54 PM - Thread Starter
 
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I don't understand why a 401(k) would be handled differently from an IRA, since you have the same penalties for cashing out. If the 401(k) doesn't affect eligibility, I'd contact someone in person -- either govt official or a social services organization that would know how to advocate on your behalf -- to get a more expert opinion before taking the hit and cashing out the IRA.

THe other question is what you would do with the proceeds of the IRA -- from my brief review of FS eligibility, you can only have $2K in a bank account, and your car has to be below a certain value. The worst outcome would be that you cash out the IRA, pay the penalty, and end up sabotaging your eligibility anyway.

Last thing to consider: how long would you remain eligible for FS? Can you get FS while attending med school? (Just my ignorance here.) Would the money from FS actually make up for the penalty you pay on cashing out the IRA? If you're only getting FS for a short period of time, probably not. (I'm deliberately ignoring the loss of the tax-free growth on the IRA, which is non-trivial. But you and your kids have to eat now, for the tax-free growth to mean anything later on.)
401k assets are not counted, IRA assets are There was a piece of legislation before congress (I think) last fall to remedy this and set aside either form of retirement savings, but it seems it didn't pass...

With the money from the IRA, I would pre-pay mortgage debt. My family would be otherwise covering the payments. So I could put it to good use ASAP.

I will look into the length of time of food stamps. My research has not turned up any limits on length of time, but that's a really good point. So far as I know, med students would be eligible. But another good thing to investigate.
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#4 of 23 Old 03-05-2008, 12:21 AM
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Originally Posted by BusyBeeMom View Post
401k assets are not counted, IRA assets are There was a piece of legislation before congress (I think) last fall to remedy this and set aside either form of retirement savings, but it seems it didn't pass...

With the money from the IRA, I would pre-pay mortgage debt. My family would be otherwise covering the payments. So I could put it to good use ASAP.

I will look into the length of time of food stamps. My research has not turned up any limits on length of time, but that's a really good point. So far as I know, med students would be eligible. But another good thing to investigate.
Wow, what a miserable situation. Some more brainstorming. If you have any tax accountant friends, see if you can get a smidgen of their professional advice, once tax season is over.

Can you roll the IRA into your 401(k)?

edit:

Can I just add HOW STUPID AND INFURIATING IT IS that IRA assets are not exempted? Who needs food stamps most often: women with children. Who most often have had to rely solely on IRAs to have any sort of retirement savings at all? women. WHO IS THE GENIUS WHO DECIDED TO FORCE WOMEN TO CHOOSE BETWEEN EATING WHEN THEY ARE ELDERLY AND FEEDING THEMSELVES AND THEIR CHILDREN NOW??? NOT A WOMAN.

Are there any other tax-favored accounts, like an IRA, that don't count for FS, and if so, could you roll the IRA into one of those accounts? (Coverdell education account maybe? Health savings account?)

Bigger picture: paying for medical school. Will what you do with the IRA now affect your eligibility for financial aid then, or is it sufficiently distant in the future as to not matter?

Good luck - these are really hard questions.
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#5 of 23 Old 03-05-2008, 01:51 AM
 
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Originally Posted by BusyBeeMom View Post
Ok, hear me out...

My family is helping with housing, bills, etc., but FS would be an ENORMOUS help. I will get child support but not much for this area (high cost of living) b/c he doesn't make much.
I'm pretty sure the financial help from your family would be considered part of your income... income is not just money that is earned from a "job" so unless you are planning on hiding the fact of this extra "income" it may not matter how much you have or don't have in whatever sheltered savings type account.

I'm not for certain how child support is handled/looked at, in terms of it being income or not.
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#6 of 23 Old 03-05-2008, 02:09 AM
 
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Just went through some of this, although not the IRA part. I was newly single, living with my mom when dd2 was born, and then started law school. Here was my experience. Food stamps was a tremendous help. It was such a relief to know we had food on the table! And as far as help from family goes, I reported it, but my family paid the bills directly, so it didn't really go through my acct. We lived lean, had fs and child support and some student loans. Check if you have to report those (if you'd need any) because some states require them to be reported...which is like asking if you have a credit line before you are allowed food stamps imo :

Anyways, good luck, and it's a long road but rewarding! I now have SIX weeks of lawschool left...yay!

(oh, and with DH in the picture, we don't qualify for foodstamps by a very small amount each month, which sucks, but oh well)
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#7 of 23 Old 03-05-2008, 02:38 AM
 
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Originally Posted by lightheart View Post
I'm pretty sure the financial help from your family would be considered part of your income... income is not just money that is earned from a "job" so unless you are planning on hiding the fact of this extra "income" it may not matter how much you have or don't have in whatever sheltered savings type account.

I'm not for certain how child support is handled/looked at, in terms of it being income or not.
Financial help from family is considered a gift, not income. There are specific tax laws about how much money and how often you can received these sums of money. It's definately something you need to talk to an accountant about, do your parents use someone that you can talk to?
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#8 of 23 Old 03-05-2008, 03:01 AM
 
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You can get food stamps for life, so most definitely for 6 years of college.

6 years of food stamps = $32,554
Your IRA = ~$9000

Seems obvious to me what you should do! Especially if that $9k can do good elsewhere!

Amy ~ Web Designing Single Mom to 4: DD14, DS12, DS5, DS3
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#9 of 23 Old 03-05-2008, 10:53 AM
 
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If you use your IRA to pay your college tuition, you don't have to pay the 10% penalty for withdrawing the money.

Also, you should see if you can work little bits here and there so that you have some earned income and can qualify for an EITC next year.

Stacia -- intrepid mama, midwife, and doula. Changing the world one 'zine at a time.
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#10 of 23 Old 03-05-2008, 11:13 AM - Thread Starter
 
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Ok, thanks all. Yes, it's INFURIATING. I read an informative opinion piece about it in the Washington Post:

http://www.washingtonpost.com/wp-dyn...092002123.html

Having read all I have, I believe that if my family pays my bills, but does not give me the money, it should be fine. Also, one can receive up to a certain amount per year (I believe $12K from each person) and that be a gift, not income (earned or otherwise). Above that threshold, I believe it's taxable income.

I'll check about rolling over, but my understanding is that you can roll $$ from a 401k into an IRA, but not the other way around...

Thanks Jstr for sharing your experience! It's inspiring!

So, once the separation is final, I will probably go this route, although I'll do a bit more vetting.
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#11 of 23 Old 03-05-2008, 11:39 AM
 
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I just want to point out that what counts as income for tax purposes does not necessarily correspond with counts as income for FS puposes. for wxample, CS is not income to the recipient, but it typically counts toward FS eligibility. Also, there are considerable state-to-state differences regarding FS eligibility. I don't know what calculator you are looking at, but make sure it is state-specific.

I would do what's necessary to become eligible, provided that you will be eligible for a few years. Retirement is important, but you need to eat and feed your family now. Good luck.
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#12 of 23 Old 03-05-2008, 11:54 AM - Thread Starter
 
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I just want to point out that what counts as income for tax purposes does not necessarily correspond with counts as income for FS puposes. for wxample, CS is not income to the recipient, but it typically counts toward FS eligibility. Also, there are considerable state-to-state differences regarding FS eligibility. I don't know what calculator you are looking at, but make sure it is state-specific.

I would do what's necessary to become eligible, provided that you will be eligible for a few years. Retirement is important, but you need to eat and feed your family now. Good luck.

Thanks, yes, I was using the NY calculator. I included my anticipated CS payments, and tried to answer everything as correctly as possible, so hopefully it's pretty accurate. Do you know if the FS people will talk to you BEFORE applying to try to sort out eligibility. As WNB pointed out, the worst case scenario would be cashing out the IRA & still not being eligible b/c I read things wrong...ugh.
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#13 of 23 Old 03-05-2008, 12:23 PM
 
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If you do take it out, be sure to save money from it for the taxes/fees you will owe on it. You will pay income tax as well as early withdrawal fees next tax time.
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#14 of 23 Old 03-05-2008, 01:05 PM
 
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You really need to talk to someone at the office where you apply. Some states have strange rules. In WA I couldn't get fs when I was attending a university unless I was also working at least 20 hours a week. They also counted any bills paid by family as my income even if I never touched it. Dfferent areas have very different regulations.
They will also consider any savings and the value of your car. You just can't be sure until you talk to a caseworker.
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#15 of 23 Old 03-05-2008, 01:22 PM
 
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My state also counts bills paid by relatives and cs as income.


And unless you are basically homeless or on TANF and have ZERO income.... you will not get the full food stamp amount each month.


FS is on a sliding scale. For example someone who makes it just under the cut off may only recieve $20-$30 in FS a month.


They say it is because fs is supposed to supplement and NOT pay for 100% of your groceries.






But it does sound like the best option for you! Good luck!

Resistance is futile Matey
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#16 of 23 Old 03-05-2008, 05:42 PM
 
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Call and see if you can get an appointment, but it's hard to get info. It's like it's a state secret. I took a big risk when I needed fs for a while (complicated story). In MA, where I am, money in an IRA does not count toward eligibility if you have children under 19, but neither do ANY assets, including the same money withdrawn from an IRA sitting in your bank account. Also, in MA, I did qualify for the max amount even though I did have income, because they take into consideration rent/mortgage, utilities and healthcare costs, so again, there is considerable state-to-state variation.
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#17 of 23 Old 03-05-2008, 06:08 PM
 
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Assuming you can confirm that what you read on the website is correct, then it does sound as if you should do it. I'm pretty much against cashing in retirement accounts for any reason, but this time it's probably in your best interest. There's not much in there and you're looking at a pretty substantial amount of assistance. Check to make sure you have the whole story first though!

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#18 of 23 Old 03-05-2008, 06:10 PM
 
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I'd also be careful about cashing it out just before applying.

In our state, you have to take a form to your bank or any other finanacial institutions asking them if you have made any deposts/withdrawels in excess of $1000 within the last 6 mo or so. They would probably see this big IRA withdrawel and hold it against you.

Unless of course you were trying to hide it.
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#19 of 23 Old 03-05-2008, 10:39 PM
 
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I am a public assistance eligibility worker and the FS program is based on Federal regulations, so the policy is applied the same all over the country. An IRA account is a countable asset and the amount of the account, after withdrawal penalties, is the value of the resource or asset. The 401k account is excluded as consideration as an asset, UNLESS, you can "apply" for a hardship withdrawal on the account. In this case, the account will be counted if you are able to withdraw monies from the account. The asset limit for FS is $2000, unless you have a disabled or elderly houshold member, then it increases to $3000. So, I would convert the IRA into an excluded asset: you could buy a used car (there is a $8500 equity value exclusion on a car) or a single payment annuity policy (& receive periodic payments- that would exclude the $$ as an asset, but it counts as income). Regarding income, if your family wants to assist you with expenses, have they pay the vendor (lights, gas, rent etc) directly. That way, the support you receive will not be counted as income. If the money passes thru your hands (even if you run to the landlord and pay the rent), the amount of support you receive is considered a contribution to you and counted as income.
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#20 of 23 Old 03-06-2008, 12:00 AM
 
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I am a public assistance eligibility worker and the FS program is based on Federal regulations, so the policy is applied the same all over the country. An IRA account is a countable asset and the amount of the account, after withdrawal penalties, is the value of the resource or asset. The 401k account is excluded as consideration as an asset, UNLESS, you can "apply" for a hardship withdrawal on the account. In this case, the account will be counted if you are able to withdraw monies from the account. The asset limit for FS is $2000, unless you have a disabled or elderly houshold member, then it increases to $3000. So, I would convert the IRA into an excluded asset: you could buy a used car (there is a $8500 equity value exclusion on a car) or a single payment annuity policy (& receive periodic payments- that would exclude the $$ as an asset, but it counts as income). Regarding income, if your family wants to assist you with expenses, have they pay the vendor (lights, gas, rent etc) directly. That way, the support you receive will not be counted as income. If the money passes thru your hands (even if you run to the landlord and pay the rent), the amount of support you receive is considered a contribution to you and counted as income.
This is simply not true. There is considerable state variation in eligibility. IRA monies are not considered in MA, nor are ANY assets, if you have a child under the age of 19. This includes money in a bank account. NONE is counted, only any income you receive from interest. Cars and homes are not counted. Only income is counted. There is an application online at the Dept. of Transitional Assistance; see question 24. You are not even required to disclose your assets.
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#21 of 23 Old 03-08-2008, 11:23 PM
 
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In MN, I do not qualify for FS because of my savings acct. My car doesn't count against me and i'm 'on the edge' of the income guideline....even though I pay half of my income in rent. Half.

There are additional qualifiers imposed by the state.
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#22 of 23 Old 03-08-2008, 11:35 PM
 
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I didn't think full time students qualified for FS. This is interesting.
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#23 of 23 Old 03-09-2008, 12:03 AM
 
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I would say that you should use the money you have first. I would pay on your college tuition or buy a car if needed as suggested by the previous poster, and use the money to live off while in college. I am all for savings, but if you have the money, why not use it?? We have had to cash out 401ks before to make ends meet and to stay off of public assistance, so I know how it is.

Kristin- Wife to J, Mommy to B (11), M-S (8), and little J (4) and J&J (7 months)
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