Just re-reading my posts here and wanted to correct something–I think I’ve read (after posting this) that you can NOT reduce AGI with IRA contribution deductions. In other words, AGI for "simplified needs test) is less than $50K based on AGI plus any IRA contributions you made. I just don’t want to unintentionally mislead anyone!
That is not correct. You can reduce AGI by the $5500/$6500 ‘above the line’ IRA contribution. If that brings you below the $50k for ‘simplified assets’, great, as the test for simplified assets asks for the AGI off the tax form. Once you enter that $49,999 AGI onto FAFSA and meet one of the qualifying tests, the FAFSA will ‘skip logic’ the form and shade out income questions.
This is really the most helpful thread ever.
I don’t mean to hijack but I’d like to ask for a few clarifications.
First, we can reduce our AGI by making an IRA contribution, and the AGI is what the FAFSA uses for determining EFC?
In the past, when my kids were in public school, they got the reduced price lunch. But now they are not in public school. So how does that work?
Also, last year we had a slightly higher income due to some contract work my husband was recruited for. It got us just over the limit for reduced price lunch levels when I looked into it. Would it be possible (or even ethical) to increase retirement contributions to an approved account like a 403. Does that keep the AGI lower and will that keep us as qualifying for the reduced lunch (that we won’t even receive).
Or would putting a little into a 529 count?
I’m sorry if it seems that I’m trying to work the system to my advantage. But we are really close to meeting the simplified means test and it seems like that one little job last year had a big impact in terms of counting our assets into the EFC.
And since we really have minimum specific retirement funds, there would be a genuine purpose in moving unprotected savings into retirement accounts.
ok, I just saw that you must use gross income to qualify for reduced price lunch. And you can do it in a monthly basis, so if there’s a one time “bonus” of extra work, it should not affect eligibility.
Contributions to pretax retirement IRAs or TSAs made in the tax year the fafsa is using… are added back in as income for FAFSA EFC calculation purposes.
@thumper1 Is that the same with contributions to a 403 plan?
OK…but reducing AGI to under $50,000 with an IRA reduction will satisfy the $50,000 income limit for the simplified needs test. Is that right?
Yes…a 403 is also a tax deferred retirement plan. I was a public employee with one.
For FAFSA EFC calculation purposes…contributions to all tax deferred retirement accounts are added back in as income.
So for the 2018-2019 fafsa…you will be using the 2016 tax return. Your retirement contributions for 2016 will be added back in as income when the EFC calculation is done.
The balance IN those retirement accounts is NOT treated as an asset,
IRA and 401k contributions are not added back into the income on the FAFSA if your AGI is under $50k and you otherwise meet the test for simplified assets. Once you qualify, the skip logic questions are ‘grayed out’ and you do not add the retirement deductions back in.
One year my gross income was about $66k. I’d made about $12k in 401k contributions before my job ended. I then made a $6500 IRA contribution, so my AGI went down to $47,500. That, with the 1040A, qualified me for simplified assets on the FAFSA. If I had not made the IRA contribution, my taxable income would have been around $54k, and the 401k contributions would have been added back in to bring the total FAFSA income back to $66k. Almost a $20k swing. I swear it is the only time the IRS has been my friend.
I haven’t seen an application for reduced/free lunch in a number of years, but they used to use monthly income, so if you had a sudden job loss or reduced income for a short period, you could qualify almost immediately for free lunch. Sometimes rec centers have reduced fees for those who qualify for free lunch, so they have the forms too. Your private school may have the forms to qualify kids for free ACT/SAT testing.
@MACmiracle can you reduce your income enough to qualify for the simplified needs test?
@thumper1 , If I I could use an IRA deduction or increase 403 contributions, it would be no problem.
@twoinanddone , I typed a long post and lost it. 
My D did get a waiver for the SAT.
But it seems like the FAFSA asks if anyone received the benefits and no one has been receiving them since my kids left public school years ago.
If monthly paychecks were acceptable, we’d have no problem qualifying.
We are right on the cusp with the lunch when it comes to annual income, just over due to that special one time job H was asked to do.
The thing that might keep us from qualifying in the future is if we were to get slightly more interest income because the market has been good lately.
Oldest D is 22 so our family size will decrease when she starts working. She is doing an unpaid internship now. That alone won’t be a big issue by itself but H’s salary will also probably increase a bit, too.
So, you see, we are right on that limit.
I looked into the 1040A and we won’t be allowed to use that because of an investment fund we have. Even little gains and losses that don’t affect income much will require the 1040.
The thing is, I don’t want anything special. I don’t think we deserve a Pell grant. There are many people who truly need that. We don’t. The only thing I want is for our retirement to be protected like everyone else’s, as if we had known about IRAs and 403s like everyone else seems to and used them appropriately when we had the means.
You are being treated like everyone else - contributions to 401k, 403, or IRA are income for FAFSA in the year the contribution are made UNLESS you can qualify for simplified assets.
If you aren’t looking for Pell or other need based aid, it won’t matter. The school will never take your retirement savings, it will just increase your EFC because the funds put into retirement are still considered income.
How did your daughter qualify for fee waivers? That may be enough. It doesn’t have to be free lunch, that’s just the easiest type of assistance to receive.
She qualified for the waiver because the GC knew our income.
But the FAFSA question is about having received benefits, and we haven’t.
And our savings for retirement will really go to college expenses because we did not put our savings into IRAs all along like most people here seem to have done. (Is it just here? Because most people I know, even those with much higher incomes, seem to be in debt and only have retirement plans through work if at all.)
H had a 403 at work but didn’t understand how it worked. I just brought up to him the other day about maximizing his contributions and he thought they were maximized, but he has only $20K after more than ten years. ??
We never knew there was any benefit to having an IRA besides a one time deduction that we didn’t need. I never knew you didn’t get taxed on the interest or it wouldn’t be taken into account for financial aid. I had no idea why it would be better in anyway than any savings account.
My H is an immigrant and had no idea of the US system, and I was the child of a single mom who never was able save anything who spent all my working life abroad.
And it’s not like I had years of tax breaks from living abroad because my income was always modest.
Otherwise we are reasonably smart people who live very responsibly but never learned the basics of retirement saving…besides putting our money in the bank.
That is why I think the system is unfair.
And I have D18 and then two more kids to get through college. The money we saved for retirement will be hit hard.
I think this is a needs based benefit. The GC can’t just give waivers, there has to be a basis for them.
Assets in your retirement are irrelevant for financial aid. You can have $1 million in assets in a 401k//IRA, etc. and it does not count against you.
Tax deductible contributions to a qualified retirement account are added back into income for the year.
So:
$70,000 Gross Income
$10,000 invested in traditional IRA/401k
$60,000 Net income for tax purposes.
The $10,000 is added back so your income for financial purposes is the original $70,000 gross.
Now, if you are contributing to a Roth IRA or 401k, there is no tax deduction. Your income is $70,000 with or without the $10,000 contribution so there is nothing to add back in.
Make sense?
You think the system is unfair because you failed to learn the basics of retirement savings? So those who took the initiative to learn the basics of retirment savings have an unfair advantage? That’s an interesting perspective…
And this is a little off topic…but MOST people actually are like you are…and have NOT saved (sufficiently) for retirement. You need to let THAT part of your equation go.
@twoinanddone is talking about the Simplified NEEDS Test. To qualify, you need to have income below $50,000 AND one of the following.
- Ability to file a 1040A or 1040 EZ
OR
- Qualify for a means tested benefit like free reduced lunch, SNAP or the like.
OR
- Parent is a dislocated worker.
Just an FYI…you apply for need based aid annually…so you would need to demonstrate this EACH time your kiddo applies for need based aid for all four years of college.
And this is a little off topic…but MOST people actually are like you are…and have NOT saved (sufficiently) for retirement. You need to let THAT part of your equation go.
@twoinanddone is talking about the Simplified NEEDS Test. To qualify, you need to have income below $49,999 AND one of the following.
- Ability to file a 1040A or 1040 EZ
OR
- Qualify for a means tested benefit like free reduced lunch, SNAP or the like.
OR
- Parent is a dislocated worker.
Just an FYI…you apply for need based aid annually…so you would need to demonstrate this EACH time your kiddo applies for need based aid for all four years of college.
And this is a little off topic…but MOST people actually are like you are…and have NOT saved (sufficiently) for retirement. You need to let THAT part of your equation go.
@twoinanddone is talking about the Simplified NEEDS Test. To qualify, you need to have income below $49,999 AND one of the following.
- Ability to file a 1040A or 1040 EZ
OR
- Qualify for a means tested benefit like free reduced lunch, SNAP or the like.
OR
- Parent is a dislocated worker.
Just an FYI…you apply for need based aid annually…so you would need to demonstrate this EACH time your kiddo applies for need based aid for all four years of college.