<p>My dad asked me to post this, I have no idea what it means :P</p>
<p>"Should parents put money into a tradition IRA if by doing so it lowers AGI(adjusted gross income"</p>
<p>Thats all. Thanks.</p>
<p>Money in a traditional IRA (or any retirement plan) is generally protected. </p>
<p>There is an exception: lets say you are applying for 2006/2007. Colleges will look at your familys financial situation for tax year 2005. Any retirement plans that were funded for tax years before 2005 are protected. However, if you dad is funding a traditional IRA for tax year 2005, yes it will lower his AGI, yes he will get a tax break, but financial aid officers will treat it as income for 2005. So if your dad can fund an IRA for tax year 2005, it's to his retirement and tax benefit, but it's not a help for aid in 2006/2007.</p>
<p>if AGI is all they see, then how can they consider anything above agi as income?</p>
<p>FAFSA is not just filling out a question regarding AGI. Although not as invasive as the PROFILE, FAFSA asks for other information other than the parents/students AGI. Included are worksheets A,B and C which ask several financial questions about both parents and students income during the relevant tax year. A question on Worksheet B (both students/parents) asks for, in part, any IRA deductions . An aid officer would add back the amount listed on this line in Worksheet B your dad had contributed to his IRA.</p>
<p>When I say add back, I mean to your dads AGI.</p>
<p>The IRA money is money that hes taxed on, and he is deferring taxes, that seems unfair. If he just increased his withholding and paid the taxes it would just be money lost. Its bizarre that tax deferall is considered income!</p>