A quick google search will show a number of sources questioning the instructions about parent’s individual income. This is not about trying to circumvent the rules. This is about making sure your EFC is accurate within the rules. Perhaps some schools are using W2s to get the information. I think people should at least be open to questioning these instructions. It’s not like the instructions on the FAFSA are always so crystal clear.
Fill,the FAFSA out line by line. The line item that asks for 401 k contributions is VERY clear.
Ok I found it, here is the explanation the book gives for why you add in the 401k contributions:
Although they don’t look like it, for tax filers these are EXPENSE questions, in which case the only purpose of these questions is to compute how much social security tax you paid (the computer will subtract this from your income) and to see whether you qualify for the employment allowance. Therefore, you want these numbers to be as high as possible.
Thumper1 did that always used to be a line item? Asking for the 401k? Could it be something new? I’m not sure. Maybe this line of thinking no longer applies, that is what I’m trying to decide.
We did a FAFSA a year ago. It was a line item. We did FAFSA firms from 2003-2009 and it was a line item.
I just could not remember which line item it was.
@BelknapPoint pointed that out in an earlier post upstream.
Otherswise…how would the FAFSA calculation add back in that amount…if you didn’t provide it (like what happened when you didn’t provide it)?
Except that the instructions for Parent 1 earnings and Parent 2 earnings (FAFSA lines 88 and 89) are crystal clear:
- If you filed a form 1040, add lines 7 + 12 + 18 + Box 14 (Code A) of IRS Schedule K-1 (Form 1065).
- If you filed a form 1040A, use line 7.
- If you filed form 1040EZ, use line 1.
- If any individual earning item is negative, do not include that item in your calculation
- Report the information for the parent listed in questions 61-64 in question 88 and the information for the parent listed in questions 65-68 in question 89.
Nothing about including tax-deferred contributions to qualified retirement plans.
Read post 45 where @BelknapPoint clearly states which line on the FAFSA the tax deferred retirement contributions. For the year are put.
Line 45.a for the student
Line 94.a for the parent.
I was wondering what people thought the worst (realistic) case scenario were if one were to add in 401K contributions to the individual parent’s income as some claim to do. Not trying to do anything wrong, at this point just understand the process. Since some sources believe that it should be done (we’re talking about fair treatment of FICA as intended), it would seem a fair explanation as to why someone did such a thing. The amounts do not affect things that much anyhow (probably in the hundreds if you max out your 401K).
Why would you do that? There is a specific line on the FAFSA to list 401k contributions. Just follow the FAFSA directions…anything else is an “interpretation” and could be wrong.
Sigh … please read and follow instructions.
Oh…and FYI…if the school does request your W2 forms…and the income doesn’t match up…and the 401k is not reported on the correct line of the FAFSA…this could very much subject your student to verification…which just adds another layer onto your application process.
I agree with @kelsmom (who is a financial aid officer)…just follow the FAFSA directions.
Forget about what “other people” have written as their interpretations. Just follow the FAFSA directions. Which…are very clear.
If the AGI and income from working won’t match up with what’s on the tax return the FAFSA would probably alert you to an error.
For example if the W2 income listed on the 1040 on the wages line is $70,000 and the DRT brings that over but then you add $5,000 of 401k contributions to that in the “income from working line” then that would be too high.
But if you add the 401k contributions in the line 94a as required then it still adds up to $75,000 total income, but each is reported where it’s supposed to be reported.
So it doesn’t bother anyone that some schools have no way to actually compute the Fica taxes (not all schools request W2s) and therefore have no way to deduct the taxes from your income?
Well, yes. But I thought there was some sort of limit built into the employment allowance calculation, like the lower of 35% of the lower parent’s income or $4,000. If so, then income over $11,428 doesn’t decrease EFC.
No…it doesn’t bother me at all…not one bit.
It’s the same for everyone. It’s not like they are discriminating against ME.
As I said…and @kelsmom (who funds a financial aid office)…just follow,the FAFSA directions. Do not freelance.
One thing that annoys me about the FAFSA EFC calculation is that AGI generally includes state tax refunds.
FAFSA EFC is calculated by every school using the same formula, whether they have additional information available from W-2s or not.
@madison folks can adjust their state withholding so they don’t have a state tax refund. We haven’t had one in years…as when we did…it was very small.
Even if the school has your W2 it will not deduct your taxes paid on 401k contributions for FAFSA EFC calculations . However they can correct your FAFSA if they see that income from work amount does not match your W2.
Finaid officers at Profile schools have the power to exclude this amount in Institutional EFC calculations
You can also deduct state taxes owed as opposed to state taxes paid on your schedule A so it will not trigger AGI increase next year. If you use turbotax you will have to override calculated value, it is cumbersome but doable.
OP- I would figure out what the difference in sub/unsub loans would have been for your D1 if you have entered the information correctly last year. If it’s a lot then you should try and fix it.