Contradictions and Mysteries in Financial Aid

Are these Roth IRAs or some type of other Roth? If yes, first, you would NOT report that as part of your tax deferred contribution that gets added back since you did not get a deduction for making this contribution. You may have to include it as part of your general retirement funds when you report what you have in all of your retirement funds (401k or IRA) together (not sure). Any income or profits in this Roth account that stay within this account are NOT income and grow tax free (subject to certain rules on what happens when you go to take this money out at retirement or earlier).

For those who said that they are penalized on FAFSA for doing tax deferred 401ks or IRAs it is not really true. You deduct your tax deferred contribution from your annual income and they are asking you to add that deduction back in. It is a wash since if you did not make that IRA contribution you would have been taxed on that money and it would have been included in your FAFSA income.

This way you are getting the tax benefit (since the federal government does not want you on medicaid when you are old, public policy) but FAFSA confirms that this is a voluntary contribution (and schools do not care what happens when you are 80 or 90) so schools are not willing to subsidize it. Especially since you still have the money you contributed, it is in a retirement account instead of in your bank account.