FAFSA - how to treat deferred comp?

<p>I'm filling out the FAFSA and can't find this answer either on the FAFSA website or these threads. </p>

<p>My husband's company offers deferred compensation whereby he can set aside a % of his salary and bonus to receive in the future. This is not a true retirement benefit and since he must specify the % deferred and the dates he wants to receive it well in advance, it's not considered income for tax or ERISA. The money is placed in a phantom account by the company (a Fortune 50 co) where we are only able to manage the investment allocation. I don't think this counts as an investment under the FAFSA definition, but does anyone know the answer? Given our income and assets, we are not eligible for financial aid, but Rutgers requires filing the FAFSA for all merit aid awards, so we need to file it and I want to make sure it's correct.</p>

<p>I believe deferred compensation is an asset. I had deferred compensation (and a 401k) before and not sure if I did it correctly but I valued it for the year. I do not believe that you can “ignore” deferred compensation. I no longer work for that company and can’t remember back two years…but I think deferred comp shows up in one of the boxes on the W-2.</p>

<p>I would approach it based on it’s value today. If you called the company and requested the deferred comp NOW, how much would they give you, after penalties, etc? If they cannot give you anything at all, then you could calculate the present value of that future asset???</p>

<p>It looks like you have a 409a plan. A person on the FAFSA helpline said it does not need to be reported as an asset because it is not one of the specific assets listed in the notes for question 89. It is also not one of the investments listed in the notes as those that don’t count, such as 401K’s and IRA’s. I have a call into my employer’s helpline as well, but would be interested to see if anyone has ever gotten a specific ruling on 409a plans.</p>

<p>I contacted the organization at the College Board that administers the CSS Profile to ask them how to report contributions to a 409a non-qualified deferred compensation plans. They responded that it would not be considered untaxed income for the year it is contributed, but would be considered a future asset - “What you contribute is not included anywhere in the CSS/PROFILE application. However, the value of the 409a would be reported in section PD-175( for parent 1) or PD-270( for Parent 2).” - was their exact response.</p>

<p>This raises a question I have about how the College Board’s IDOC service processes information from the CSS Profile, tax returns and W-2 forms. </p>

<p>Contributions to 409a deferred comp plans will be included in Box 5 of the W-2 under “Medicare Wages”. I’m concerned that either the IDOCS service, or aid administrators might just subtract box 1 from box 5 to determine “untaxed income” - incorrectly including contributions to the 409a plans.</p>

<p>I love to get input from any financial aid administrators out there that are familiar with what documentation they receive from IDOCs. Does IDOCs make any changes to any information on the CSS Profile, or do they calculate any of their own computations of untaxed income using box 5 of the W-2 that are sent to the schools? (I am aware that box 5 is used on the FAFSA (lines 86/87) for income earned from work in order to determine medicare taxes for deductions against income.)</p>

<p>Or, does IDOCS just verify certain line items from the CSS/FAFSA and provide scanned copies of the tax documents to the schools to use as they desire?</p>

<p>Was wondering if anyone had a response to the question above?</p>

<p>I do not know how IDOCs will handle this sort of thing, but I can tell you that if the financial aid office of any number of PROFILE schools got wind of that discrepancy between the Medicare Income and Taxable income, that it is very possible that they would call and ask for what is causing this difference. IT would then be up to each and every financial aid office how to handle the situation. For those offices that already have a procedure in place for such situations, it would be handled easily as such. For those that don’t professional judgement would be used, and you can appeal it–you can appeal anything, but more difficult to get any change when something already has a precedent and protocol set. </p>

<p>This situation rarely comes up as an issue for financial aid consideration since those who get executive comp type deals generally are not going to get financial aid. </p>

<p>Capkip…its a good question and worthy of revisiting.</p>

<p>BUT this thread is over three years old, and sometimes the “rules” do change. Anything you are reading upstream here from 2011 should be verified by your college financial aid offices, the FAFSA helpline, and the college board NOW.</p>

<p>I do agree with Cptofthehouse. A discrepancy between wages and Medicare wages is sure to send up a verification red flag at most schools.</p>

<p>Please start a new thread if this is an issue you want discussed.</p>