<p>If you fund your retirement plan, do both fafsa and profile schools see this as money that is entirely available to pay tuition? Any differences between the 2 with respect to funding retirement plans? Thank you.</p>
<p>yes, I think they both do, since on FAFSA you have to report money that goes into your retirement plan. I think in both cases this money just gets added to your income - increases your available income - though I am not 100% sure, and though different schools may use different formulas with this.</p>
<p>Now, if say you put $10,000 into your retirement account in one year, and you are self employed. Is that entire 10k "available" , dollar for dollar, for college expenses for the year? In other words say you put away 10k, your efc is 15k, now does your efc become 25k (15k efc + 10k you put into your retirement account)?</p>
<p>Northeastmom, money that you put into your qualified retirement plan in a given year is considered part of your income for that year in terms of financial aid. Most plans that are qualified allow you to deduct your contribution from your income for tax purposes. FAFSA and PROFILE make you add that contribution back to your income. So, no the contribution is not added directly to your EFC; it is added to your income figure which is used to calculate the EFC.</p>
<p>For example, if your income is $70K, and you put $10k into a qualifed plan, for tax purposes, your income becomes $60K less any other deductions. However, when you report your income for financial aid, you have to add that $10K back to make your income $70k. Sometimes the amount can kick you into a higher category that can make a devastatingly big difference in your child's aid package. But it is not going to be like the example you give where the entire amount is considered available for college. Also those monies that you already have in your account are not considered in your assets, nor is the interest or gains considered in your income. If such funds were sitting in a non qualified account, say just a plain old savings account, you would be assessed the asset % on it if you exceed the asset allowance, and any income such as realized gains, interest, dividends would be added to your income. That is a big hit as it is being double counted--as income AND as assets. </p>
<p>Though formally, retirement plans are not counted in assets, the PROFILE schools do eyeball it. If you have a multi million retirement nest egg, you had better believe it will be taken into account. Schools that use other info than just plain old FAFSA really mean "Every Frioggin' Cent" when they assess your need.</p>
<p>For the year of that FAFSA...I'll use 2007 because that is this year's tax year for FAFSA, the amount that you contribute to retirement is added back in as income. Any amount that you have IN your retirement account prior to 2007 is not considered an asset. </p>
<p>Now...I understand there is a supplemental Profile question regarding the value of your retirement accounts. I have no idea how many schools use this supplemental question or how they use that information.</p>
<p>FAFSA does not use the value of your retirement accounts at all in making the EFC calculation. FAFSA DOES use the contribution for that tax year...and I believe it is all of it.</p>
<p>Okay, fair enough. I get it now. I just did not understand what people were saying about everything you put into retirement is available for tuition. It is not quite that way.</p>
<p>Northeastmom....the monies for retirement MUST be in a retirement account (IRA, TSA, pension plan, etc). The money cannot be in regular savings, CDs or real estate. In particular, owning real estate beyond your primary residence DOES put you at a significantly higher level in terms of payment. The assumption is that any property that is not your primary residence can be sold. Many folks have real estate investments (or other) or other savings that THEY have earmarked for retirement. The cautionary tale here is...if you want it for retirement instead of college...put it in RETIREMENT accounts.</p>
<p>^^ Does that even make sense? I thought the money in retirement accounts was also treated as available for college payment? Is it just considered at a lower rate than an extra home or something?</p>
<p>As I said...there is a supplemental question on the Profile that asks about the VALUE of retirement accounts. I have no idea how those Profile schools use that question. I have no idea how MANY of the Profile schools even request that supplemental question (none of the schools my kids went to used it). </p>
<p>Money that is currently IN your retirement account (not the amount contributed in the tax year for the FAFSA and Profile you are completing...for this year, that would be the 2007 year), but money in PRIOR to that tax year is not factored into the financial aid equation EXCEPT perhaps for those school using the supplemental question.</p>
<p>Lalaloo...I'm not sure I understand why you think this doesn't make sense. Retirement accounts have limitations on their use. In most cases, they were pretax contributions. In most cases, you cannot withdraw without penalty until you are 59 1/2 years old. In most cases, these are long term investment accounts that are held until the person actually retires and there are penalties for early withdrawal. And in many cases, these types of accounts are the only pension types of accounts adults have (many companies no longer have private pension plans as was the case when our parents were in the work force).</p>
<p>
[quote]
^^ Does that even make sense? I thought the money in retirement accounts was also treated as available for college payment? Is it just considered at a lower rate than an extra home or something?
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On FAFSA retirement account balances are not reported at all and are not considered by the formula at all. Current year contributions are considered as available income. The cumulative asset is ignored.</p>
<p>"Current year contributions are considered as available income."</p>
<p>Meaning, contributions made for the year prior to the year FAFSA is submitted (the same year you're reporting income and tax figures for).</p>
<p>Thanks everyone.</p>
<p>someone above said owning a second home puts you at a distinct disadvantage - but isn't it just considered the same as a cash asset? For example if you have 20k sitting in a savings account, that's an asset. Is it counted differently if you own a property with 20k of equity? I thought it was all the same.</p>
<p>Orjr...for second homes, I'm not sure it's the equity...I believe it is the value of the property (Swimcats, SBlake...what is it?).</p>
<p>The full equity (value less mortgage debt) of second homes counts as an asset.</p>
<p>Thanks - so post #13 is correct then? The full equity is counted in the same way as if you had that same amount in a bank account?</p>
<p>Yes-- for second homes, the equity is counted as an asset, same as if you had that equity in a bank account. Primary residences are different (FAFSA doesn't include equity in primary residences, and many Profile schools cap equity in primary residences).</p>
<p>So if the second home equity + all other assets = an amount under the asset protection allowance on profile, then all should be well?</p>
<p>Or does it tick the college off that someone bought a cheap vac. property instead of keeping cash in the bank?</p>
<p>Orjr, I'm not sure of the total asset protection allowance...but I think it's in the $40K range. </p>
<p>By the way...rental income investments are treated differently, I believe.</p>
<p>For FAFSA the asset protection varies according to the number of parents and the age of the older. </p>
<p>page 19</p>
<p>Don't know about profile.</p>