<p>OK, it sounds like:</p>
<ol>
<li><p>The profit from the sale would be well under $250K so is NOT incomeI need to report for FAFSA (or pay taxes on, for that matter).</p></li>
<li><p>The cash I would have left over after paying off debt/buying a car/pre-paying rent - spending it, in other words - **will **be considered an asset for FAFSA **unless **I put it into a retirement account, with all the rules that go with that.</p></li>
</ol>
<p>Is that about right?</p>
<p>
</p>
<p>The money that you put into a retirement account will be added back as an asset (because it is considered money that you could use for college).</p>
<p>I understood retirement accounts not to be reportable on FAFSA at all: [Avoiding</a> 10 Common FAFSA Mistakes | The College Solution](<a href=“http://www.thecollegesolution.com/avoiding-10-common-fafsa-mistakes]Avoiding”>Avoiding 10 Common FAFSA Mistakes)</p>
<p>Pre-tax money contributed to a retirement account one year is added back into AGI on the next year’s FAFSA. It’s considered an option to contribute to retirement rather than use the money for college.</p>
<p>If you would use the proceeds of the sale to contribute to a retirement account and don’t take the deduction for a traditional IRA, it wouldn’t be pre-tax and wouldn’t be added back into AGI. You would have to have enough earned income to cover that amount and there are limits. In that scenario a Roth would seem to be best.</p>
<p>Amounts already in retirement accounts are not reported as assets for FAFSA.</p>
<p>Gotcha thanks. I doubt the amount I’m thinking of contributing will be beyond the asset exemption anyway, but you’ve given me options to consider, thanks.</p>
<p>Now this is only for my curiosity, given the above, but you have me wondering:</p>
<p>Wouldn’t the proceeds from a house sale, an amount exempt from cap gains tax, also not be “pre-tax” since it’s not taxable anyway?</p>
<p>That’s what I said, proceeds from the sale would not be pre-tax.</p>
<p>So if it’s treated as “not pre-tax”, I don’t get a deduction for contributing to retirement but I also don’t have to add it back to AGI and thus have it be part of a FAFSA calculation…is that right?</p>
<p>I appreciate your willingness to help me out with understanding this :)</p>
<p>Right. Pre-tax 401k contributions are not included in AGI so have to be added back in. The amount of a deduction for a traditional IRA contribution reduces AGI so would have to be added back in. After tax contributions to Roths or contributions to traditional IRAs where the deduction isn’t taken are already included in AGI so don’t have to be included in AGI again. In your case contributing from assets and getting no tax advantage that reduces AGI, the amount wouldn’t have to be added back in.</p>
<p>Thanks not-annoyingdad :)</p>
<p>Okay so what if you are divorcing and splitting the proceeds from the sale of the family home? If I can’t find a home and rent for a year and my half of the equity is liquid, sitting although it is slotted for a subsequent home buy when I find one, will the financial aid consider that liquid cash available for tuition and reduce my financial aid?</p>
<p>Yup.</p>
<p>But do remember that most places don’t meet need, so it doesn’t matter if the money is in the bank or in a house.</p>
<p>If your kid is a viable candidate for colleges and universities that meet need, and your house money would play havoc with the aid package, then a gap year might be in order.</p>
<p>My daughter is already a sophomore at a college that does meet need. This is for next school year. I can’t find a suitable house and must get out of the old by March 20th and will have to sign a 1 year lease. So my equity as cash will be considered readily available for tuition, etc unless it is invested in a home right away? A gap year doesn’t seem to be the right thing to ask of her so I’m going to get hit hard? And so is exhusband who is renting as well. Sheesh.</p>
<p>If you do pull some cash out of the home sale, put it into a 529 or retirement account right away, and it will have very limited effect on your financial aid. Also, the formulas allow every family to retain a certain amount of savings for emergencies without impacting their aid. That amount is often $40,000 to $50,000.</p>