Does retirement savings have to be in a traditional account to be considered exempt on the FAFSA?
Yes. It must be an authorized retirement account like a Tax Sheltered Annuity, or an Individual Retirement Account.
Money in regular savings is not considered retirement savings even if that is what the family intends. FAFSA and Profile consider balances in retirement accounts very differently than regular savings.
Regular savings or checking is an asset. The balances in retirement accounts are not even mentioned on the FAFSA.
BUT…the contributions to those IRA and TSA accounts are added back in as income.
They have to be in a formal retirement account, IRA, 401k, 403b etc., for the assets to be exempt from reporting. They can be traditional or roth. They can’t just be in a non-retirement account that parents have allocated for retirement purposes.
Contributions are only added back for pre-tax or deductible contributions, not for roth contributions which are already included in AGI.
Thank you for the information. Happy New Year!