<p>I hope a self-employed person who knows about the FAFSA and SEP-IRAs backwards and forwards can help me with this!</p>
<p>Here's what I do know:</p>
<p>If I had a regular IRA contribution (not SEP-IRA), I would have to add it back into my FAFSA as non-taxed income.</p>
<p>If I made personal contributions to my SEP-IRA (the regular $5,500 a year deal), I would have to add it back into my FAFSA as non-taxed income.</p>
<p>Here's my very specific question:</p>
<p>What happens with the "employer contribution" to the SEP-IRA, when the contributor is me, as my own employer? My husband, for example, who has a pension from his employer, doesn't have to declare what his employer contributed to his pension. I'm wondering if, by analogy, the SEP-IRA portion that comes from me-as-employer-of-myself (up to 20 percent of my income) likewise does not have to be reported, even if the portion that counts as my personal contribution (up to $5,500 of my income) would.</p>
<p>I’ll tell you what I did. My husband and I have an S-corp. We pay ourselves a salary. We contribute to SEP-IRAs from the corporation at the rate of about 18% which is all we can afford to do. The SEP-IRA is an expense to the corporation and serves to reduce earnings. Those earnings are passed through the corp to our joint taxes. Because the line items of revenue and expenses of the corporation are reported on our corporate taxes and not on our personal taxes, I didn’t report the SEP-IRA contribution on FAFSA. I see it as a corporate expense, just as salaries, payments to consultants, office supplies, phone/Internet expenses etc are corporate expenses. </p>
<p>These SEP-IRA contributions also do not appear on lines 28 or 32 of your individual 1040, which if I remember correctly is what is asked for on the FAFSA form.</p>
<p>Thanks for the info vballmom – well it sounds like because I’m not a corporation but rather a lowly (haha) sole proprietorship, I have to add it back in to my FAFSA. The FAFSA is not kind to the self-employed.</p>
<p>I’d like to hear from someone who knows for sure on this one also. The distinction is the COMPANY contribution to the SEP (or even a solo 401K if anyone knows). I’d have to talk to my accountant to find out which line this goes on. I’d assume it’s on the schedule C for a sole prop. but not sure. </p>
<p>I’d imagine the CSS profile or a review of taxes from a profile school would see it as a personal contribution, but IF it appears as a business contribution on schedule C I wonder if FAFSA would have to ignore it? </p>
<p>How is the COMPANY match to a 401K handled on FAFSA?</p>
<p>The SEP-IRA contribution should be reported as your contribution, not your company’s (sole proprietorship). I am not sure where you got 5.5K limit, because the limit depends on adjusted gross income of the proprietorship. </p>
<p>Also, the SEP-IRA contribution does not reduce proprietorship income, it reduces your personal income. </p>
<p>Just like 401K contribution, SEP-IRA contribution will increase you income for financial aid purposes, because apparently it is considered optional expense.</p>
vballmom, I know this is an older thread, but if you’re still around on CC, I’m curious if your experience with your S-corp SEP contribution panned out as you expected on the FAFSA and financial aid results?
My husband and I also have an S-corp and our daughter is a college sophomore. We don’t contribute to our SEPs every year, but our income was up slightly in 2015, and we would like to do so now. I worry that our extra work in 2015 (you know, to make the tuition payments) will end up reducing our daughter’s aid.
Our accountant confirms that the SEP contribution will only be reported on the corporate return. I wonder… if I use the “IRS data retrieval tool” will the contribution somehow get unearthed and plugged into the FAFSA as untaxed income anyway?? It’s such a weird one. Employer contributions to retirement plans are not counted…unless you’re self-employed…except if you’re incorporated?
This is all doubly important this year since recent tax/fafsa changes will mean that our 2015 tax returns will be used for both 2016-17 and 2017-18. I dread the possibility that a contribution this year will come back to haunt us. Twice.
Anyhoo, did things work out as you expected back in 2013?
I don’t know the answer to the SEP-IRA question, but the 401k contributions don’t show up on our tax return, but must be reported on FAFSA in question 94a. Child support received is not listed on tax return, but is untaxed income reportable for FAFSA.
So I don’t think you can just say it doesn’t count for FAFSA if it’s not on tax return.
kwrinkle, I just saw your questions. I contributed close to the max to my SEP-IRA via my S-Corp for most (possibly all) of the years I filed FAFSA. The contributions were an expense of the corporation and served to reduce corporate earnings, which in turn showed up as less $$s to pass through to my 1040. The SEP-IRA was not reported on FAFSA and the reduced income flowed through to my EFC calculation as expected. There were no surprises.
I can’t speak to 2015’s FAFSA as it’s been a while since I filed, but if the rules for income reporting haven’t changed, then your SEP-IRA contributions are not reportable for FAFSA.
Same here – but I think if you are applying to CSS profile schools that want the Business/Farm Supplement, then the S-Corp contribution is revealed there.
Thanks vball and and intparent. I’ve mined the interwebs and our accountant’s brain as best I could, and it does look like the difference with SEP contributions is still all in whether you’re a sole-proprietor or incorporated. For a sole-proprietor it’s reported on the fafsa as a parent payment to a tax-deferred pension (sorry S-Ps). For S-corps it’s considered an employer contribution and the corporate expense ends up factored into the S-corp income line on our 1040.
intparent, you’re right. Our older daughter attended a CSS profile school, where this distinction mattered not!
I once reported the company contribution to my SEP (S-corp) on my FAFSA and my daughters college revised it to remove it as income. Since then I’ve never reported it as untaxed income. And every year they review my business tax return where it is clearly shown yet they do not add it back into income.