<p>My parents make about 140k a year. for some schools, id have to pay anywhere from like 30k to upwards of like 50k. the thing is that my parents usually put about 40k a year into retirement saving, so i certainly dont feel as if my parents dont make 140k a year.</p>
<p>does this make any difference as opposed to if my parents put only ike... 5-10k in retirement accounts a year?</p>
<p>No. No difference in the formula that calculates EFC. If the money is going into a tax deferred retirement plan, the formula adds it back into income. If it's not tax deferred, it's included in the income reported in the first place.</p>
<p>The only advantage would be that the family would have more money available to pay for college. Your parents may just reduce the amount they've been funding their retirement with annually, in order to help pay for college.</p>
<p>Makes no difference. For FAFSA Income cannot be reduced by the amount put into a retirement account. That is added back and considered as available income. So if the income is $140 but $40k is contributed to a 401k reducing the AGI to $100k the EFC formula will add the $40k back to the AGI making the available income for the FAFSA formula $140k. </p>
<p>Money in the retirement accounts is a protected asset for FAFSA. The current years contributions are not, as far as income is concerned.</p>
<p>Swimcatsmom, My dad has like 100k in his 401k but has not contributed to it since he got layed off and started his own business, this means that his 401k is protected from being assessed in the EFC?</p>
<p>Yes for FAFSA. He does not even have to report it on FAFSA.</p>
<p>CSS/profile may require it though.</p>
<p>Are your parents self-employed? I'm guessing they are if they're able to put $40K into retirement accounts. The limit for 2008 401(k) contributions is $15,500 per person, although if they're over 50 there's an additional catch-up amount they can contribute as well. IRA limits have an annual contribution limit of $5000. </p>
<p>If your parents are self-employed via an S-Corporation, their company can contribute up to 25% of their compensation to a SEP-IRA, providing the contribution does not exceed $46,000. </p>
<p>What's interesting in this scenario (and this is going to be mind-numbing, sorry!) is that the Corporation makes the SEP-IRA contribution and reports it as a deduction on the S-Corp income tax form. The SEP-IRA contribution serves to reduce the ordinary business income of the Corporation. S-Corp income is passed through to the owners via schedule E of the owner's individual tax return based on the percent ownership of the corp. There's nothing on Schedule E referring to the SEP-IRA; Schedule E just shows the net income of the S-Corp.</p>
<p>So let's take a very simple example. Corporation Megabucks is an S corporation owned by 4 people, each owning 25%. 2 owners have an annual salary of $200,000, and the other 2 owners have an annual salary of $100,000. The corporation contributes 20% of everyone's pay to SEP-IRAs, for a total contribution of $120,000 ($40K + $40K + $20K + $20K). Revenue of the corporation is $800,000. Expenses are $720,000 (all 4 salaries plus the SEP-IRA contributions). Net income for Megabucks Corporation is thus $80,000. This income is divided by 4 and reported equally on each of the 4 owners' individual returns. So each owner's income has increased by $20,000. This goes on line 17 of the individual 1040 (Rental real estate, royalties, partnerships, S corporations, etc/Schedule E).</p>
<p>Where's the SEP-IRA contribution? It's not on line 28 (Self-employed SEP plans) of the individual return. It's not on the 1040 at all. It was netted out of the corporate income, and doesn't appear anywhere on the individual return. </p>
<p>FAFSA asks for line 28 + line 32 of your 1040 (Self-employed SEP, SIMPLE and qualified plans plus IRA deduction). For an S-Corp in the scenario above, this would be zero. </p>
<p>Curious, isn't it?</p>
<p>Thought I had it figured out, but I was wrong. I dunno---</p>
<p>All the schools im applying to require the CSS/Profile but I heard that the majority of them dont consider 401k. I thought you couldn't even access that till later.</p>
<p>Machiavelli you're confusing current 401k contributions with funds invested in a 401k in the past. Current contributions (from 2008) are considered discretionary and so the financial aid forms want you to add them back into your total income for purposes of calculating your EFC. Funds that are already in your 401k are not reported/considered by the financial aid forms (although I believe the Profile does ask what the total amount in your retirement funds are, which goes into some complex algorithm to determine if you've got enough put aside to pay for college as well).</p>
<p>Oh I see thank you for clearing that up.</p>
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Are your parents self-employed? I'm guessing they are if they're able to put $40K into retirement accounts. The limit for 2008 401(k) contributions is $15,500 per person, although if they're over 50 there's an additional catch-up amount they can contribute as well. IRA limits have an annual contribution limit of $5000.
[/QUOTE]
</p>
<p>My family has two wage earners, each over 50, each contributed the max (or $20,500 each) so, $41,000 in total. </p>
<p>That may be what the OP meant.</p>