FAFSA and 1040X

[theReach]

<p>My dad just realized that if he had bought $4000 in IRA this year, we would be under the 31k threshold for the simplified needs test. But we already filed our tax returns and submitted the FAFSA to my school (which has a March 2 FAFSA deadline). Can he go out and buy the IRA this week, have our tax preparer send in a 1040X, thereby allowing me to edit my FAFSA ?</p>

[_rentof2]

<p>Contributions to retirement accounts are added back in as income, so it won’t make a difference at this point.</p>

<p>Actual balances in retirement accounts are not considered, but any contributions made to them in a year that is being used to determine aid is added back in as income. This makes sense because otherwise people would just put more money into their retirement accounts in order to get more financial aid.</p>

<p>These financial aid folks are pretty savvy. There isn’t likely to be anything a financial aid newbie can dream up that they haven’t dealt with already a million times. ;)</p>

[theReach]

<p>So when I subtract the $4000 from my AGI and list it under the “Untaxed Income” section on the FAFSA, it is automatically added on to the AGI again? So is it the IRS that adds the contributions back as income, or the FAFSA?</p>

[theReach]

<p>Sorry for the multiple questions, but I am confused: last year, I fell under the 31k simplified needs threshhold because of a 401k payment, which I assume would be added back, just like the IRA is. Yet I still got the automatic 0 EFC. Is the 401k different from my dad’s IRA? (He told me its not a Roth IRA, which I have merely a vague idea of what it is).</p>

[happymomof1]

<p>Money paid into an IRA or 401k doesn’t appear in the AGI, however, it is added back into the FAFSA formula as Untaxed Income. It’s not an IRS issue, it is a FAFSA issue.</p>

<p>You can print out the FAFSA formulas for this year and last year from:
<a href=“http://www.ifap.ed.gov/efcformulaguide/attachments/101310EFCFormulaGuide1112.pdf[/url]”>http://www.ifap.ed.gov/efcformulaguide/attachments/101310EFCFormulaGuide1112.pdf&lt;/a&gt;
<a href=“http://www.ifap.ed.gov/efcformulaguide/attachments/111609EFCFormulaGuide20102011.pdf[/url]”>http://www.ifap.ed.gov/efcformulaguide/attachments/111609EFCFormulaGuide20102011.pdf&lt;/a&gt;&lt;/p&gt;

<p>If you work your way through the formulas on paper, you should be able to find which factors made a difference in your results for this year.</p>

[swimcatsmom]

<p>

Contributions to retirement accounts are added back in as income, so it won’t make a difference at this point.

Actually I believe for the automatic 0 EFC the AGI is what matters (kind of a little loophole there). If the AGI is within the income limits and one of the the other criteria is met then the calculation where an IRA is added back is not even performed by the formula. It stops at the AGI.</p>

<p>But I have no idea if filing a 1040X would work in this situation.</p>

[_rentof2]

<p>If you look on the worksheets linked in HappyMom’s post, isn’t that contributions being added back in with questions #4 and #6 before arriving at "total income’? It looks to be true for both the “regular” worksheet and also the simplified needs worksheet.</p>

<p>Take a look, I may be wrong. I have never qualified for simplified needs, so my knowledge isn’t from direct experience.</p>

[kelsmom]

<p>You can update your FAFSA with the new information. If you haven’t already been selected for verification, the change might result in selection … but that’s no big deal. If you have to be verified, you just submit the original 1040 and the 1040X. </p>

<p>It’s AGI that counts for auto 0 (and the other component … the type of tax return - and filing a 1040X if you were otherwise eligible to file a 1040A/EZ won’t mess that up, or dislocated worker, or federal means tested benefits in the past 24 months. The IRA payment counts toward untaxed income, but if the family falls into auto 0 it won’t matter (does matter for simplified needs, though).</p>

[theReach]

<p>@kelsmom</p>

<p>I have already been chosen for verification by my original FAFSA. If I’m understanding correctly…even though IRA and 401k are added back at the end, its the AGI deduction that initially matters? So my dad is going to go buy the IRA and then I will update my FAFSA with my 1040X information.</p>

[swimcatsmom]

<p>

If you look on the worksheets linked in HappyMom’s post, isn’t that contributions being added back in with questions #4 and #6 before arriving at "total income’? It looks to be true for both the “regular” worksheet and also the simplified needs worksheet.

But question 3 comes first. And by question three (parent taxable income) there is a big *. At the bottom of the formula the instructions for the * are:</p>

<p>

*STOP HERE if the following are true:<br>
Line 3 is $30,000 or less and •<br>
The parents are eligible to file a 2009 IRS Form 1040A or 1040EZ (they
are not required to file a 2009 Form 1040) or they are not required to file any income tax return or
• Anyone included in the parents’ household size (as defined on the FAFSA) \received benefits during 2008 or 2009 from any of the designated means tested Federal benefit programs or
• Either one of the parents is a dislocated worker
If these circumstances are true, the Expected Family Contribution is
automatically zero.

</p>

<p>It is the AGI that counts here.</p>

[theReach]

<p>@swimcatsmom</p>

<p>Thanks for that information! No wonder I received 0 efc last year with the 401k my parents purchased. So its not too late in the tax year for my dad to go to the bank and purchase some IRA?</p>