This has been the case, but will be eliminated with the Simplified FAFSA starting 2024-25. Not sure what CSS Profile schools plan on doing.
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Then this will be less of a burden for those applying for need based aid…right?
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Yes, to the extent 401k contributions won’t increase one’s FAFSA income, but this change is only at the FAFSA level….so more people could qualify for Pell, for example…. but as we know many of the most generous FA schools use their own formula to create FA packages.
So, no telling if CSS Profile schools will follow suit…it can still be considered a “choice” to funnel savings to a retirement plan, rather than a college savings vehicle.
Well…this change could make a difference in the income amount on the FAFSA for many people. Not just lower income folks. We contributed the max to our tax deferred retirement accounts…so almost $40,000 a year was added back in as income. Of course, this really didn’t matter much as our kids didn’t attend colleges that met full need for all. And we weren’t Pell eligible anyway.
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Yep, this change will impact many people’s FAFSA. But remember this change isn’t happening in a vacuum.
There are other FAFSA changes too, and depending on a given family’s situation the net impact of the changes on their SAI could be positive, negative, or neutral.
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Yes…and right now…it’s the great unknown.
Where to even begin? First of all, there is no way that every school will ever be affordable for every student. It’s just not possible. Focusing on that is a waste of time.
How to make it more affordable for students to receive an education post-high school? That’s a more productive conversation. And I don’t even know the answer to that. I have worked in higher education, and I was intimately involved in budgeting. Providing an education is expensive, and providing an away-from-home education is even more expensive.
In order to make education more affordable for everyone, society will need to make a commitment to provide increased funding for education (college, certificate, trade). That, of course, requires money. So people will end up paying through taxes. At the risk of bordering on political conversation, perhaps the tax code should be changed so that the folks who don’t pay a proportional amount of taxes based on the amount they earn are actually paying into the tax kitty used to fund education.
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No, individuals don’t have absolute control over what type of accounts are available to them.
Only 68% of employed Americans have access to 401ks or similar types of tax-advantaged accounts (according to the US Census Bureau). I assume when you say retirement savings are not included, you are really talking about tax-advantaged investment vehicles under the sections of IRS code that cover retirement. Is that correct?
Those types of assumptions are where the FAFSA makes no sense. There are others; I just picked that as an example.
Well…it doesn’t matter anymore anyway because those tax deferred contributions are not being added back in as income as the new simplified FAFSA guidelines are implemented.
What about for the 32% of Americans who don’t have access to tax-advantaged employer sponsored plans? Or the CSS Profile?
What about parents who had two children two years apart 18 years ago and planned based on the old FAFSA rules but will now be on the hook for more that they didn’t have time to plan for?
Perhaps @kelsmom can explain the simplified FAFSA formula.
Since the contributions will no longer be added back in as income…folks without employer sponsored retirement contribution accounts can open Roth IRSs. Anyone can do that. And the balances in those accounts are not considered assets.
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This would only be an issue if the family was Pell eligible, or their kids were accepted to colleges that guaranteed to meet full need for all. Neither of these would have been totally predictable 18 years ago.
Do you know what the annual limits for individual IRAs have been historically?
That’s not realistic. It doesn’t affect me personally anyway, but I know a lot of people who are really being screwed by the system this year, and it’s sickening.
I’m not talking about PELL eligible families. I’m talking about AMI or 2xAMI families.
Exactly. Nothing was predictable 20 years ago - except for the fact that college was liable to be very expensive by the time our kids got to be college age.
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@BelknapPoint what are these limits. Also, these apply per parent…correct?
They are currently 6.5/person. As recently as five years ago, they were 5.5k, going all the way back to 3k before that. Personal IRAs were never designed to be stand-alone retirement plans.
This is certainly off-topic, as it does nothing to bring college costs down for everyone, but since you asked…
I am not sure what your point is? Many who don’t have access thru an employer retirement plan do have access to other retirement vehicles like Roth IRA, SEP IRA, Keogh, etc. There will always be some who are advantaged or disadvantaged by whatever the FAFSA rules are, but the lawmakers have to make a line in the sand.
CSS Profile is a form required by many private schools to access Financial Aid, so if a kid’s college list includes those types of colleges, they complete CSS in addition to FAFSA. It’s not about having ‘access’. CSS is a far more in-depth financial form than FAFSA.
I would be surprised if anyone planned the timing of their children based on FAFSA rules in 2003. But, I guess some may have.
I do understand why some (including the lawmakers evidently) had a problem that families with kids relatively close in age could benefit from a policy that those with kids farther apart could never access.
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The sibling change will only impact FAFSA SAI…which in turn doesn’t impact financial aid at many schools. (It is widely believed that CSS schools will continue to consider multiples in college). What schools are these families at that you are thinking their FA package will be diminished?
Retirement is not the topic here. Please get back on topic.
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