There are dollar limits on what can be placed in certain retirement accounts annually.
For need-based financial aid purposes, “count as retirement” means tax-advantaged accounts that are designed specifically to save for retirement. As previously noted in this thread, that means traditional and Roth IRA accounts, 401(k), 403(b) and other IRS designated retirement accounts, as well as designated contributions to a pension fund. If the money is invested in stocks, mutual funds, or money market accounts that are not part of the types of retirement accounts listed above, than very likely it is an asset that must be reported on FAFSA and Profile and will be considered by colleges as available to help pay for your education.
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Here is a website provided by the IRS that lists various types of retirement accounts:
As @thumper1 noted above, there are limits as to how much can be contributed to/reallocted to these accounts on an annual basis, but it would be a good idea to look into what options are available for your family for future years – especially if you have younger siblings who will be going to college either concurrently with or after you.
There is no limit to how much can be used to pay off a mortgage on a primary home. CSS colleges differ in whether they assess home equity in a primary home at all, and if so, how much. FAFSA schools do not assess home equity at all when looking at assets.
If your parents have a mortgage on their primary home, they might want to talk to their accountand and/or a financial advisor about reallocating some of their retirement savings into paying off their mortgage . This might shield those assets from future financial aid consideration, but it is NOT a decision to be undertaken lightly and they should definitely get advice about the advisability of doing so for their particular situation.
This site gives details on how some CSS profile schools treat home equity BUT it is not completely up-to-date because it has Brown assessing home equity at a high rate, but Brown just announced that they will be ignoring home equity starting next academic year. So you can use this as a rough guideline, but definitely check with your college if this might apply to you.
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Yes, there are annual dollar limits to what can be contributed to qualified retirement accounts, but the number varies depending on type of account, age of the account owner, type of employee, employment status, etc., etc., etc.
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@MMRose So my parents can pay up to $15k/year excluding the $15k they have saved in a 529. I said we could swing $20k-$25k because between a combination of the “student contribution” (which I can use outside scholarships to pay for), the approx. 3.5k/year from my 529, and the $5k/year I plan to make from summer jobs and such, that means that roughly $10k/year can be paid for without them touching anything. So $25k-$10k=$15k, which fits my parents budget. I’m just trying to see if there’s anyway I can bridge that approx. gap between $31k and $25k since my parents don’t want me to take out loans.
So 401ks, IRAs, Roth IRAs, 457s, and pensions aren’t included in financial aid calculations? Do you know if there are any places they could move money to that wouldn’t be included in future calculations?
They have about $15k in a 529
They do have some money saved up so I’m not planning on asking them to touch their retirement accounts
Thanks for pointing out that I can save money by lowering my “personal expenses”; I’ll definitely look into trying to calculate how much I would actually need to spend per year
Outside scholarships must be reported and likely will affect your need-based aid. Make sure you know the school’s policies in this regard so that you aren’t making bad assumptions.
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I’ll look into this!
Yes! I have a sibling who is two years younger than me (HS class of 2024). I had read about the FAFSA no longer taking total # of siblings in college into account, so I figured that other schools would do the same, but I’ll definitely ask the financial aid office if they are planning to continue to consider that in future years
Thanks! I’ll ask them to check!
@raye08 the first step is to confirm that you filled out the FA forms and the NPC correctly. Specifically, is the 250-400k in assets in a retirement account or not?
Your parents should know the answer or find out. If you mistakenly reported retirement assets as non retirement savings and investment, that’s the whole ballgame and an easy error to correct with the FA office.
So pensions don’t count?
Don’t count for what? I need to know what you are asking so I can provide an accurate answer.
If they have a defined-benefit pension plan, the CSS asks them to report the value of that pension plan, but it is reported as a retirement asset (not as an investment) and the colleges will not assess that (ie, use it “against” you) when calculating your financial aid package. At least, that’s how it was for us.
Defering of course to @belknappoint
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The school’s website says that outside scholarships replace the “student contribution” before affecting institutional grants. So this means that if the student contribution section on my financial aid letter is 3.5k, and I earn 3.5k in outside scholarships, then my institutional grant remains the same, correct?
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If my parents have pensions because they are state employees and they reported that as part of their assets, they shouldn’t have, correct? Because that’s retirement money and its exempt from calculations?
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Correct.