<p>I have read that current retirement funds are not considered for aid. However, If I fund my IRA or SEP this year that money would be considered as usable for college and it would be "deducted" from aid. My question is, am I better off leaving the money in a savings account and it would be considered at a certain rate or if I put the money into a retirement account would the rate be the same or is all of it considered available for college?</p>
<p>You have to look at it from a point of view of the affect on income and the effect on assets (both of which are considered by the EFC formula). You cannot reduce your AGI for FAFSA by amounts contributed in the tax year reported on FAFSA but you do not have to report the IRA asset caused by the contribution. So from a FAFSA income point of view there is no benefit in contributing to an IRA in the tax year reported on FAFSA. From a FAFSA asset point of view the money is better in an IRA (if you do not need to access it).</p>
<p>For instance if your AGI is $60,000 but you contributed $7000 to an IRA that $7,000 will be added back to your AGI by the EFC formula making your income used in the formula $67,000. The $7,000 in your IRA is a protected asset from a FAFSA point of view so will not be considered by the EFC formula.</p>
<p>If you do not contribute to your IRA your income would still be $67,000. But if you put that $7,000 into a regular (non IRA) savings account it is not protected as an asset so would be considered by the EFC formula.</p>
<p>Well...you sort of have it correct. The money you have IN your retirement accounts is not counted as assets. However, the contributions you MAKE in the year for that FAFSA are added back in as income for that year. In other words, if you will be filling out the FAFSA in Jan 2009 for fall 2009 financial aid, any money that you contribute to your retirement account in 2008 will be added back in as income.</p>
<p>Your retirement contribution for that year will increase your available income from 2008...but your whole retirement contribution would not be deducted from your financial aid...that's not quite how it works.</p>
<p>Financial aid is given based on income AND assets. You cannot reduce your income by contributions to your pension plan because those contributions that are subtracted from income for tax purposes, are added back for FA purposes. However, if the money is sitting in a qualified pension plan, it does not count in assets whereas if it is sitting in a regular account it is counted as assets. One of the reasons people scream about savers being penalized is because when you save money, you get hit for it as income and then again each year while it is an asset, with earnings being reported as income. In a pension plan, you do not have included as an asset, nor are the earnings included, so you do win out that way.</p>
<p>Thanks for the information from each of you - Does FAFSA consider $10,000 in savings the same way as opposed to transfering that 10K into an IRA? Would I likely recieve less aid if the money is in savings or considered income (in an IRA)? Is the asset calculated differently?</p>
<p>The $10,000 income is income whatever you do and will be included in the EFC formula. There is nothing you can do to avoid that.</p>
<p>If you save the $10,000 in an IRA it will not be considered as an asset at all by the EFC formula. If saved in regular savings it will be considered as an asset by the formula.</p>
<p>So if you save it in an IRA the $10k will just be considered as income by FAFSA.</p>
<p>If you save it in a regular savings account it will be considered as income then again as an asset. So it will be double counted.</p>
<p>The EFC formula looks at 2 main things.
1. Income.
2. Assets
They are treated differently.
1. Income. Has some allowances deducted against it such as taxes (actual taxes paid for federal - an estimate based on tables in the EFC formula for State and FICA). Then there is an income protection allowance based on number in family and number in college. After that the remaining income is considered 'Available Income'. A % of available income goes to the EFC. The % increases the higher the income up to a maximum of 47%..
2. Assets. There are assets that you do not report at all such as primary home and IRAs. After that there is an asset protection allowance based on the number of parents and the age of the older parent. 12% of the remaining assets are considered available income and are added to the available income from income in 1 above making Adjusted Available Income. The maximum amount of AAI that goes to the EFC is 47% making the maximum amount of your assets that goes to the EFC 5.6% (47% of 12%).</p>
<p>So the maximum of your income after allowances that can go to the EFC is 47%.
The maximum of unprotected assets that can go to the EFC is 5.6%</p>
<p>Your EFC will be lower by @ $560 with the $10k in an IRA as opposed to regular savings . But on the other hand if you are not eligible for much aid based on your EFC the $10k will be harder to access to pay for college.</p>
<p>finaid has an EFC calculator
FinAid</a> | Calculators | Expected Family Contribution (EFC) and Financial Aid</p>
<p>Run your alternative scenarios through there to get an idea of the different outcomes.</p>
<p>All the above applies to FAFSA only. Not to schools that also use css/profile.</p>
<p>We have over 100K in wife's savings account (she's stay at home mom--money was inherited in 2007). We're counting on this toward retirement (I work, but we're both 50s). We have one kid in public university (sophomore--we've yet to file a FAFSA) but have another kid, real smart will be college freshman in 2009 and aiming at expensive LACs/Ivy. So that's two kids at same time, starting in 2009. My pre-tax income is about 170K. We have mortgage (240K), four cars (one each for the kids) and a HS freshman son. There are five of us. One income. A 401K through job but no pension.</p>
<p>Questions:</p>
<p>Will they factor in 100K savings, which is important part of our retirement? Do they expect us to spend it on tuition? </p>
<p>With two kids in college at the same time, will they cut my income in half for fin aid purposes?</p>
<p>We expect younger daughter to get in to one top school (probably by skin of her teeth--she's top 10% and half-Af Am) but not be competitive enough for merit scholarships. We're panicked trying to save for retirement as only middle class people, but not knowing how to pay for college. What to do? </p>
<p>Any advice appreciated.</p>
<p>For FAFSA
[quote]
Will they factor in 100K savings, which is important part of our retirement?
[/quote]
Yes. Unless it is in a retirement account such as an IRA than it is not a protected asset even if you have it 'earmarked' for retirement. If it is in an IRA it is protected. But there is an assset protection allowance based on the number of parents and the age of the older parent. After that a maximum of @ 5.6% of assets goes to the EFC.</p>
<p>
[quote]
With two kids in college at the same time, will they cut my income in half for fin aid purposes?
[/quote]
No they do not cut your income in half. The do cut the parent part of the EFC in half. The parent income and assets and the student income and assets are run through a formula and produce an EFC that is a combination of the parents contribution and the student's contribution. Where there are 2 students the parents contribution will be divided equally between the 2 students. </p>
<p>So for instance if the parent EFC for child a with 1 child in school is 40,000 and the student part of the EFC is 2,000 giving a total EFC of 42,000 then with 2 in school the EFC for child a would be 40,000/2 + 2,000 making it 22,000. (Child bs EFC would be 40,000/2 + whatever their EFC is which may be higher or lower depending on whether they have more or less income or savings than child a).</p>
<p>Go to the calculator at finaid.com and run your numbers through to get an idea of your EFC. Even with 2 in school your FAFSA EFC will be up in the $20ks somewhere. </p>
<p>FinAid</a> | Calculators | Expected Family Contribution (EFC) and Financial Aid</p>
<p>
[quote]
We have mortgage (240K), four cars (one each for the kids) and a HS freshman son
[/quote]
Your primary home is not reported as an asset for FAFSA nor is the mortgage reported. The only debt that has an affect on FAFSA is debt directly against an asset - for instance a secondary home would be reported as an asset and a mortgage against the secondary home can be used to reduce the value of the home. Credit card debt or car loans are considered consumer debt and are not reported. Your cars are not relevant for FAFSA. The only affect the freshman son has is that he increases the nunber in family and the EFC fomula adjusts the income protection allowance to allow for this. And he will probably overlap with your middle child for a year in college so that may be helpful at that time.</p>
<p>All the above is for FAFSA. If the school your daughter goes to is a profile school they may have their own way of treating income and assets.</p>
<p>One thing you could consider is using the $100k to pay down your mortgage. The house is not considered as an asset at all by FAFSA so putting the $100k into the house would make it a protected asset for FAFSA (I don't know about profile). The drawback is you would have less ready cash available for tuition payments but it would reduce your EFC a little - though as your EFC is quite high I don't know how much aid that would realistically get you.</p>
<p>This is my understanding, and if I'm wrong about any of this, I hope someone lets me know....</p>
<p>Some Profile schools consider home equity in determining aid. Some Profile schools, though they consider home equity, cap the amount they consider. </p>
<p>If your child will be going to college in the fall of 2009, then this year is your base year for FAFSA/Profile; your income for this year will be considered. For your various savings/investments/etc. accounts, the balance on the day you fill out the FAFSA is what counts. So, if you want to save that $100K for retirement, you should have it in a retirement vehicle, such as a Roth IRA; Roths and other retirement accounts are NOT counted by FAFSA. </p>
<p>You have this year and the very first part of January, 2009, to move money intended for retirement that is in a savings account into a retirement account. You will not be able to move all of it, of course, as there are limits on how much/year you can contribute to Roths/other retirement vehicles.</p>
<p>As swimcatsmom says, you may also want to consider paying down your mortgage, depending on what schools your child is looking at and whether that school considers equity and how much equity they consider. </p>
<p>One oft-suggested read around here is "How to Pay for College Without Going Broke." I borrowed it from the library, read it, and plan to read it at least once a year until my S goes off to college, which is likely to be fall of 2011. I think you would benefit from reading the book. (I'm sure I would benefit from reading it again!)</p>
<p>Run your numbers through the calculators and see what the impacts are of various factors. Does the savings make a big difference? What would make a difference in getting aid? For FAFSA purposes, in order to get PELL monies, your family income has to be low and those assets may not be the reason why your child is not eligible. For PROFILE EFC where it will make the most difference if your child is looking at schools that use this caluculator, you should do the same.</p>
<br>
<blockquote> <p>You have this year and the very first part of January, 2009, to move money intended for retirement that is in a savings account into a retirement account.>></p> </blockquote>
<br>
<p>Actually, I'm not sure this is going to help this person with the $100K in savings right now....if their child is starting college in Sept 2009. The tax year for reporting will be 2008. Any money they move into a retirement account (protected) during the 2008 calendar year, will be added back IN as income for that year. I'm not sure exactly how something like a Roth is viewed as this is not pretax...but this is the case for all other types of retirement accounts. So...I'm not sure this would help the family in the freshman year...but at least after the freshman year that the money would be in a real retirement account where it would not be counted as an asset.</p>
<p>This family is probably is going to have a somewhat high EFC anyway. They probably aren't going to qualify for any of the low income federally funded financial aid (e.g. Pell, Perkins loans etc). My guess (and it's a guess) is that their EFC will be in the $50,000 range. Even divided by two for the two kids in college, this would be roughly $25K each.</p>
<p>Many private LACs require the Profile. Paying $100K toward the mortgage will increase home equity. Many schools do have a cap for the amount of home equity they expect a family to tap. But some do not. And as mentioned above, if the family needs the money for college expenses, it will not be available to them if they pay down their mortgage OR put money into a retirement account.</p>
<p>I hope Swimcats or Sybbie see this $100K dilemma and have some idea about it.</p>
<p>
[quote]
Any money they move into a retirement account (protected) during the 2008 calendar year, will be added back IN as income for that year.
[/quote]
</p>
<p>Really? I thought it was only income that was moved into a retirement account, as into a 401K plan.</p>
<p>From FinAid:</p>
<p>"Worksheet B (Tax-Deferred and Untaxed Income) reports income that was not included in taxable income but which are counted during the need analysis process. These amounts will be added to taxable income. This includes the following:</p>
<pre><code>* Contributions to tax-deferred pension and savings plans.
* IRA deductions and payments to SEP, SIMPLE and Keogh plans. "
</code></pre>
<p>etc. </p>
<p>From the instructions for Worksheet B (again from FinAid): "Worksheet B</p>
<p>This form is used to calculate the total for Worksheet B. Worksheet B focuses on tax-deferred and untaxed income."</p>
<p>I had taken this to mean that pre-tax deposits from income into retirement funds are added back in to income, because those monies are not included in the AGI.</p>
<p>Money that is income-neutral, as money in a savings account is, is not deducted from income, and of course Roth IRA money is after-tax money, so the deposits into a Roth are not deducted from income and are included in AGI.</p>
<p>If this is not the case, I have some work to do before the end of the year!</p>
<p>Aren't there limits to how much you can move into an IRA in any one year? I thought it was $5-6000 in a year. Not really something that will help the OP.</p>
<p>Owlice - you are correct - it is only IRA contributions to traditional IRAs that have to be reported on worksheet B because those contributions were used to reduce the AGI - they are added back to the AGI by the EFC formula. Roth contributions do not reduce the AGI and do not have to be reported on WS B</p>
<p>Yes, there are limits. And thanks, swimcatsmom! I went looking, and found this, also from FinAid: "For example, a Roth IRA is funded with post-tax dollars, and so the contributions are not included on Worksheet B of the FAFSA."</p>
<p>The limits on contributions depend on the age of the contributor. More info here: Traditional</a> IRA and Roth IRA Contribution Limits</p>
<p>The poster whose pre-tax income is 170K would not be eligible to move his savings into a Roth IRA, since this is available only to single filers making up to $95,000 or married couples making a combined maximum of $150,000 annually.</p>
<p>He should also think twice about using it to pay down his mortgage, especially if he's in an area of the country where property values are sinking fast. He might not be able to get that $100K back out when he needed it, especially in an emergency. Having a leveraged asset such as a mortgage is generally a smarter financial move than paying all cash for a house, but of course situations vary.</p>
<p>Having 100K in cash only reduces his EFC by at most $5600 (minus some amt for the asset protection allowance); at this income level it's unlikely to make a big percentage difference in EFC and probably not worth moving anywhere. </p>
<p>However, how is the child who's in college now paying for his/her expenses? One possibility would be to give the child who's in college now enough money to pay for the next 3 years of college. Up to $24K can be gifted each year; put this in the form of a custodial 529 in this child's name. This removes it from the equation for child 2. </p>
<p>You're right to be concerned about saving for retirement, so only go with the 529 if this is money you'd be spending on college anyway, and if that money can be replaced by other sources (savings from your salary?) in order to build up more reserves for retirement. Are you maxing out your 401k every year?</p>
<p>vballmom, oh, I completely forgot about the income cap! Doh!</p>