<p>It's been recommended to make contrabutions to a roth or other IRA before the base tax yr. (my son, a junior wiht tax year Jan 2011 for Sept 2012 entry). Yet I have read it might be Advantageous to place a roth contrabution in 2011 and very early in 2012 before april 15 (back referenced for tax yr 2011). It seems that the suggestion is to file FAFSA feb-april 2012 to be able to back date the roth to tax year 2011. <strong><em>my base assumption is that all retirment $ needs to added by Dec. 2010</em></strong></p>
<p>Confusion/Problem
1. I thought retirement $ added during a base year is counted as an asset. So how does this really Help???
2. I am note getting the syncing between base year Jan 2011 and the application statements made in FAFSA Feb-April 2012. Does this date allow you to attest that the ROTH early 2012 is some how exempt.</p>
<p>This makes my head spin off! I now want to put money in my matress!</p>
<p>Who is giving you this advice? Unless you are moving money from a regular savings account this will not make a difference on FAFSA.
Money in retirement accounts such as IRAs are not reportable assets on FAFSA.
The only way it would make a difference is if you are moving money from a regular savings account (which would have to be reported as an asset) to a retirement account (which would not have to be reported as an asset). Even then you have a certain amount of asset protection based on the number of parents and the age of the older parent, so only assets over this amount have any impact.
as far as affects on income, Roth contributions are after tax dollars so the years contributions will not even be reported on FAFSA.
Traditional IRA contributions are made with pretax dollars so will reduce the AGI reported on FAFSA. But the FAFSA EFC formula will add back and IRA contributions to the AGI before calculating the EFC as income is not allowed to be reduced by IRA contributions for financial aid calculations.
5.The max you can contribute to an IRA in a year is around $5,000 ish. So if you are moving assets to protect them you will not be protecting much. The maximum amount a parent’s assets will have on the EFC is 5.6%. So 5,000 would impact the EFC by 280 (if the 5000 is over the protected asset amount).
You have to complete a new FAFSA every year so all the base year stuff makes no difference.</p>
<p>Roth IRA contributions are not tax deductible, while regular IRA contributions are. The amount of the tax-deductible IRA contribution is added back in as income for FAFSA. Regardless of when the tax-deductible contribution is made, if it’s for the 2011 tax year it will appear on your 2011 tax form and so will be reportable. So while you can make IRA contributions for the prior year up until April of the following year, I don’t see how that would matter for deductible contributions.</p>
<p>For Roth IRA contributions, if you don’t have the cash to make the contribution until after the tax year, then I could see how moving that cash from a savings account to a Roth IRA might be advantageous. For example, if you have an extra $5000 in January of 2012 and want to designate that as a 2011 Roth IRA contribution, assuming you make the contribution prior to filing your 2011 FAFSA, that will protect the $5000. If you keep the $5000 in savings until after you file FAFSA, then you’d report it as a parent asset.</p>