I understand that colleges don’t ask what it’s in your retirement acct when you apply for FA. What happens if you decide to retire right before your child goes to college or retire after the first year? Do you only have to report whatever you take out of your 401? I think we may be eligible for a little aid if my husband is working, but probably won’t be eligible if he retires and if they know how much is in the retirement acct. We plan on finding a financial advisor, but in the meantime we were wondering. Thanks in advance.
The balance IN your retirement accounts is not counted as an asset.
I’m going to give you an example.
If your child will be starting college in 2018, the financial aid forms will use the 2016 tax year information. So…any income from 2016 would be counted…and retirement income is included. So withdrawals from your retirement accounts would count as income. So would social security. Or any other pension you receive. If you worked part of 2016, and contributed money TO your retirement accounts…the 2016 contributions would be added back in as income for financial aid purposes.
Some Profile Schools ask for the balance in your retirement accounts, but there is no support to those being used in the need based aid calculations.
What are you hoping a financial advisor will do for you in terms of college funding?
The total amount of all retirement accounts is a standard Profile question, so any school that requires Profile will see this information. Unless it’s a crazy high figure though, the number is only used to add context to the family’s overall financial situation. In other words, the vast majority of families will not be penalized for having qualified retirement savings when it comes to determining need-based financial aid.
Thanks a million @thumper1 Very helpful. We need a financial advisor, because things are complicated. We’re trying to decide when DH should retire. We will have more money for college when he retires, which is unusual. Can you tell me why colleges look at tax forms from 2 yrs earlier? Also, my concern is that we can afford more than it appears, because we have money in the 401k’s. Is there a way to let colleges know that you don’t “need” as much as it seems. An example, what if a NPC says your EFC is 40k, but you can actually pay $50k? Don’t kids have a better shot at some schools if their need isn’t so great, especially if they have zero hooks?Sorry for bombarding you with all these questions.
@BelknapPoint thank you. I am so confused. I did some NPCs for private schools and they always asked how much you contributed to your retirement acct, but they did not ask for how much was IN the acct. Are most private schools Profile schools? I am just learning about FA. I was hoping that we did not have to state what was in retirement savings. Also, what is a “crazy high amt”??
- Most colleges are need blind for admissions...so,the admissions folks won't know a thing about family finances when your application is reviewed.
- This year, the FAFSA and Profile both changed to using prior prior tax year information. In addition, both forms become available for filing on October 1 of your child's senior year in HS. This really makes the process easier. In the past...using the previous year...most students filed financial aid forms in January using estimates from the previous year. Then they had to update once the taxes were completed. By moving to prior prior year...the taxes are complete from the get go...and forms can be completed ONE time....no estimates. And schools can get the actual financial aid awards prepared more quickly.
- Once more...the balance IN your 401k account will not be used at all to compute need based aid.
- A question....will you qualify for need based aid? You have a lot of questions like you will... but if your income is above a certain level...and that includes retirement income...you might be doing all,this financial aid questioning for no good reason.
- Do,you have money saved for college?
- Do you think your kids will qualify for merit aid? Are they strong students?
- If necessary, could you delay retirement?
That’s because in all but the most extreme cases, the amount that’s in the account(s) will not be considered.
Most of the schools that are very generous with need-based aid require the Profile. This includes some public schools. Here is the list:
If you complete Profile, you will need to do this.
Good question. The people that know aren’t saying.
@thumper1 I’d like to pm you tomorrow. @BelknapPoint thanks so much!
We can be full pay when DH retires, but we will need some aid while he is still working if tuition is approaching 70k in 2019. Ideally, merit would be lovely or some FA. Also open to other options like a great state flagship(OOS). As of now D should be able to get some merit, but who knows what can happen next yr with grades, etc when HS becomes even more difficult with lots more APs, and there’s still the ACT to take… It’s all so complicated. Again, thank you both so much. DH and I have been talking about this all night!
Some more questions; Since the NPCs don’t ask for how much is in your retirement acct, then it seems that the EFC they give you will be inaccurate/unreliable, right? That is if you have too much in retirement savings. (How does one go about finding out what “too much” is?) I know they ask for the age of the oldest parent. Do they take that into consideration if the the oldest parent is 60 ish?
They ask for the age of the older parent because, at least for the FAFSA generated EFC, older parents get a bigger as set protection amount. The difference isn’t that much, but it helps.
I don’t think it would be unusual for a school to consider $500k-$1M in retirement as ‘not too much’ if the parent is nearing retirement. If parents have been saving $10k per year for 35 years, times two parents, that’s $700k.
Now if you have $700k in 401k plans and also have $2M in other assets? The schools could feel you have plenty for retirement.
@twoinanddone So helpful. Thanks!
Just one thought…no one MUST attend a $70,000 a year college.
No, no, no. Again: in all but the most extreme cases, the amount that’s in the account(s) will not be considered. I’m hesitant to set a fixed number on what constitutes “extreme,” but we’re probably talking multiple millions. Do you and your husband have more than $2 million in retirement accounts? $5 million? $10 million? Whatever the amount is, it will need to be reported on Profile, whether or not your husband is retired, and at some point, the schools will say, “they have waaaay more than they need for a comfortable retirement, so need-based aid is not appropriate.”
Can you give us a ballpark figure of what your total retirement account balance is? Maybe then we can either allay (or confirm) your fears.
@BelknapPoint I pm’ed you
What year in HS is your first child to go to college? Has that kiddo taken a SAT or ACT test yet?
Any idea about majors or types of colleges?
Is this a year away of three years away?