I think this answer is spot on.
However, just to clarify, child will be starting college in 2024, and I believe that contributions to some types of retirement accounts will be handled differently in the new formula and in some cases the EFC/SAI will be reduced; however, as far as I can tell the changes will only impact those who contribute to retirement accounts like a 401k. Contributing to an IRA will be handled similarly as in the old formula.
The case studies that kelsmom posted had this explanation:
Example 5: SAI Lower Than EFC Due to Contributions to Tax-Deferred Pensions
Max is a dependent student with married parents and a family size of four. Their parents’ combined income is $95,000 and they contributed $20,000 in pre-tax income to 401(k) retirement savings accounts. They have $15,000 in savings. Max earns $10,000 and has no assets.
Max’s SAI is lower than their EFC by nearly half. This is largely driven by the changes to untaxed income in the new FM formula. Whereas currently, all contributions to tax-deferred retirement savings accounts like 401(k) plans are treated as untaxed income, starting in 2024-25 only those contributions that are delineated on the tax return, like IRAs, will be treated as untaxed income. This is because of the broader FAFSA simplification effort that uses the FUTURE Act to collect all income data, taxed and untaxed, directly from the IRS. Because contributions to 401(k) plans are not delineated on the FAFSA, they cannot be obtained directly from IRS tax data and, as such, are not treated as untaxed income in the SAI calculation. Other factors contributing to the decrease in SAI vs. EFC include higher income protection allowances under the new FM formula.
Families that make large untaxed contributions to 401(k), 403(b), and other retirement plans that aren’t delineated on the tax return will likely see correspondingly large decreases to the SAI as compared to the EFC.
The draft formula is here and for what it is worth, I found this estimator on the web gave me the exact same result as when I worked my way through the posted draft, but my finances are super simple compared to most.