<p>I'm going to crunch the numbers for our situation, and I know in general the answer is yes, but how much? Does it work the same regardless of income level? I recognize it also depends on the type of retirement investment. The money for Roth IRAs, for example, is taxable income--so it doesnt affect income, while 401k money reduces taxable income. </p>
<p>We save a lot, but we can up our 401K to 20 percent of income. We are also doing some renovations on our house that will significantly reduce our non-retirement savings.</p>
<p>My understanding is that income is also more of a factor for EFC than assets.</p>
<p>Also to what extent does age of parent affect the formula? If you are of retirement age or close to it, how does that affect the formula?</p>
<p>While assets in retirement accounts are nor reportable assets for FAFSA purposes, contributions to retirement accounts are added back to income in the EFC formula. So upping your contributions will *not *decrease your income or your EFC (may in fact increase it if the contributions are to non Roth IRAs). But from an asset point of viw, yes the assets will be protected.</p>
<p>For the FAFSA EFC, income is usually much more of a driving force than assets. Once income exceeds a certain amount, up to 47% of income can go to the EFC. The maximum amount of unprotected parent assets that will go to the EFC is around 5.6%.</p>
<p>For reportable assets, asset protection is based on the number of parents and the age of the older parent. For a married couple where the older parent is 51, the asset protection allowance is currently $48,000. Where the parent is 65 or older, it is $71,000. Single parents have only around 1/3 of he asset protection. The amounts change every year - they actually dropped this year.</p>
<p>Behind the questions you answer on the Fafsa or CSS Profile, there are formulas used to come up with the target family contribution. This includes age of the parent, state, number in the family, etc.</p>
<p>This offers a look at some of the Fafsa process; many of us found it worth the effort to run through this. If you tinker with it, you can see how it may affect EFC up or down, a few dollars or more. <a href=“http://ifap.ed.gov/efcformulaguide/attachments/010512EFCFormulaGuide1213.pdf[/url]”>http://ifap.ed.gov/efcformulaguide/attachments/010512EFCFormulaGuide1213.pdf</a></p>
<p>Remember, the “EFC” from the Fafsa is just for assessing Fed aid eligibility. The colleges willl make their own decisions, based on how they view your situation, how much money they have to give, in the first place, and for some, what sorts of kids they may consider a priority. The CSS schools can ask about a host of variables that can constitute assets or show your overall financial strength.</p>
<p>I’m not sure your net gain will be better. The amount you contribute to pretax retirement accounts is added back in as income…so your INCOME for the FAFSA/PROFILE year would not change. The money IN those retirement accounts is not counted on the FAFSA, but many profile schools do ask what your retirement account balances are…but no one really knows how this impacts need based financial aid.</p>
<p>I will venture a guess…need based financial aid is LARGELY based on your income…and then some on assets. Since your income will not change FOR FINANCIAL AID CALCULATION PURPOSES…if you contribute more to your IRA/TSA, I’m not sure you will have any benefit.</p>
<p>The other thing to consider is that the vast majority of schools do NOT meet full need for all accepted students. So…you might be doing these financial gymnastics for nothing.</p>
<p>Why not just pick a random school and run their net price calculator and see if there is any difference.</p>
<p>Tax free contributions to an IRA may actually raise the FAFSA EFC a little in that year. Taxes are an allowance against income in the EFC formula. So by making a contribution to a tax free retirement account, the income stays the same but the allowance for taxes goes down. On the other hand, the tax savings would more than offset the increase in EFC.</p>
<p>It is possible as Swimcatsmom says, but most of the time, i have found that it is still advantageous on the whole to make that tax contribution. You lower your taxes to have to be paid on the state and federal level, and have some money in savings. For that, you may be bumped up a bit on the EFC which is probably no big deal unless you are truly on the brink for a PELL grant, at which level few people are able to be considering such contributions, so it’s usually a moot point. </p>
<p>Be aware that PROFILE schools do eye the retirement account numbers. Some outright do use them. Some only do if they are considered "large’. Still, it’s better to have than not to have in this area.</p>
<p>Are your kids applying to schools that meet need? Do you have need? </p>
<p>If not, then tying up money that you’re going to need to pay for college (and gaps) will be an issue. </p>
<p>Annual contributions will get added back in as income - because it’s a “choice” to put the money into retirement rather than paying for college. </p>
<p>And, some CSS schools consider what you have in retirement funds.</p>
<p>It looks like you have a rising junior and freshman in college. the older child goes to a FAFSA school and the younger one to a full need CSS school. </p>
<p>You’ll have to do the math and figure out what you’ll get either way, but likely your bigger problem may be once the older child graduates, you’ll be on the hook for a lot more at the private that your D will be attending. Does that sound right?</p>