<p>Is it possible/advisable to make IRA contributions in order to reduce income for the sake of FAFSA or other "cut off" numbers for scholarships?</p>
<p>For a second, I thought you were asking if contributions to the IRA were deductible.</p>
<p>Pretty sure that contributions to a traditional IRA reduce AGI, contributions to a Roth IRA do not reduce AGI, and contributions to the Provisional IRA will get you interrogated (it’s true). As for what’s advisable… well, that depends on your personal situation. However, there aren’t many hard-and-fast cut-off numbers in financial aid, unless you’re dealing with the Pell Grant. When you see private colleges say that incomes under XXX,XXX typically get XX% of aid, it’s just that: typical. Being a little over or a little under that “typical” number won’t make a big difference.</p>
<p>I am quite sure that contributions to an IRA or 401(k) get added back to your income. The retirement account itself is protected - but contributing to an IRA or 401(k) is a voluntary action - a choice that you make - and it gets added back to your income - along with the taxes that you saved - for purposes of financial aid calculations.</p>
<p>^^^^
Exactly correct. There is no loophole here. The contribution gets added back to income.</p>
<p>Yes, Iron maiden and rockvillemom are correct. Contributions to IRAs are added back to the AGI in the EFC formula. In fact they will increase your EFC a little. The contributions are added back to income, but your taxes are still reduced because of the contributions which reduces the allowances against your income.</p>
<p>Interesting information. </p>
<p>For scholarships based on X income (that maybe don’t use FAFSA - not sure which this would apply to, but let’s use Harvard for example… if you are under 60k it’s free, under 100k it’s 10% of your income, and so on… <em>this example is probably not accurate, it’s just for illustration</em>). So if my income meets some threshhold (after IRA contributions…) would the cut off apply to our situation or not? I realize that I could contact the schools specifically, but I’m asking generally.</p>
<p>Thank you.</p>
<p>Havard uses the FAFSA and the CSS profile. the contributions are added back into the FAFSA.</p>
<p>Not to mention that most if not all of the elites that have those 10% rules also factor in ASSETS not just INCOME. So making $100,000 isn’t the sole determiner.</p>
<p>I appreciate the replies, as it will save us from tying up money we need without any immediate benefit.</p>
<p>So, the only way to reduce income is to make less money? :-)</p>