<p>how does retirement savings in 401k affect efc, css, and financial aid for private schools? would it be smart to put more money into it?</p>
<p>Income that you put into retirement savings in the years you fill out the forms for, still counts as income for financial aid purposes (even if it doesn’t count for tax purposes). However, once the money is in a retirement fund (401K, IRA etc.) it doesn’t generally count as an asset. (CSS Profile schools can count whatever they want – I think most don’t count retirement assets though.)</p>
<p>Protecting the asset by putting it into retirement funds will save you about 5.6% of the amount you save. So it’s good to put money in as long as you aren’t going to need those funds before retirement (say, to pay your share of the college costs).</p>
<p>I am a little confused. So if for many years before you have to pay for college it makes sense to put the maxium amount that you can afford into IRA & 401ks b/c that is not viewed by FASFA as a touchable asset correct? </p>
<p>Which also makes me wonder -if you have no savings since you may have been a big spender while your kids were growing up- it actually helps your EFC (since you have no assets) correct?</p>
<p>It may help your FAFSA EFC, but in real “aid” it may not make much difference.</p>
<p>EFC is largely INCOME driven.</p>
<p>And…fed aid is low…so it doesn’t make sense to spend spend spend…and then have a 10,000 EFC and only get a 5500 fed loan.</p>
<p>Both correct (according to my understanding) though I don’t really recommend spending down all your assets as a college funding strategy – most schools don’t meet full need after all, so having a low EFC doesn’t help as much as having actual money you can put toward college!</p>
<p>I think it is a reasonable EFC strategy though to spend money you <em>need</em> to spend anyhow just before filling out your FAFSA rather than just after.</p>
<p>For FAFSA purposes, there is an allowance they give you in terms of savings, and then they “assess” less than 6% of the remainder. Home equity does not count. But be aware FAFSA doesn’t GIVE you any money. They just make your family eligible for PELL money which you are only going to get if your income is very low and maxes out at $5500 and some subsidies on the Stafford loans that any student can get if the cost of their college justifies it. I don’t know any college that will give you what you need according to FAFSA, and if there are any, they are few indeed.</p>
<p>What it comes down to, in terms of financial aid, are the specific schools your student wants to attend and applies to. If they use PROFILE as well, they have their own set of rules, and yes, they all look at the 401k assets , though most will not include them unless deemed truly so much that they feel it is absurd not to do so. Some colleges, BC for one, do use 401K, IRA monies in their aid calculations. So in the end, you do the best you can, but it comes down to the specific schools’ policies.</p>
<p>Even with schools using the same calculators that agree to be consistent in aid methodology, there are wide variances in awards. So it’s really a crap shoot. You are better off to have the money saved to cover as much of the cost you can if you want your student to have the most options</p>
<p>I have known families who commit to their kids going to state schools that require FAFSA only and they then work on getting their finances in shape to get the minimum EFC they can. They have their money in their homes and qualified pension plans that are not counted. But unless their income is very, very low, they aren’t going to qualify for PELL monies, so all they may gain is a little subsidization of the Staffords and whatever the state school gives in aid money, and they rarely meet need. So for a first year savings, you’ve gained the interest subsidized on $2K of the Stafford. Big deal, right? </p>
<p>Some thing you might want to do is to make sure you fill out your forms on a day when your accounts are not full of money, like on pay day and before you pay for that house repair. It can cause you a lot of trouble if you have taken out a huge loan or gotten some insurance or other settlement or gift from family sitting in your account that is earmarked for that huge roof repair. Like me last month when I finally scrounged up enough to pay for gutter, and trim and other repair for our house, I had a bloated bank account that will be depleted next week when I pay for all of these things. It’s also smarter to do these things before you are filling out the FAFSA so that money is gone. But not smart to go on a spending spree. I have a friend whose kid took a gap year because their assets and income were artifically inflated that crucial year when they completed the FAFSA and PROFILE for college due to job termination distributions that were going towards the start of a business that would have to support the family in the years to come. Bad timing and the school refused to budge. For PROFILE schools, that can make a big difference in aid. </p>
<p>The only thing you can really truly do is to cover you base line by finding some low cost school options that your kid can take if the money and/or admissions offers do not pan out. My son found a number of such schools, and he was pretty happy at them. For us, the state options are good and relatively cheap and if he commuted, he could pay them himself out of pocket. A couple of local colleges are doable if he commutes and he could see that some scholarship money was likely given other kids from his school with similar stats previous experiences. And sure enough he got 2 very nice awards from such schools. Similar schools in other cities, he felt might do the same, and sure enough they did. So he had quite a few nice affordable options on his own even if we parents refused to pay for him but if he lived at home and/or took out the Stafford loans. Not too shoddy, I thought.
In fact, might fine. The rest was just the gravy. It’s just these days, many folks think that the gravy is the meal itself.</p>
<p>livesinnewjersey,</p>
<p>You can look up your FAFSA asset protection allowance on here. (See page 17) Colleges do not expect any contribution for assets below that number. It is based on age of the older parent (older is given more asset protection) and whether it is a 2 or 1 parent family. (Two parent families are given more than double the asset protection.) So, for example, if the older parent is 47, the asset protection for a 2-parent household is $48,900 and for a single-parent household it is $19,100. Those numbers do not include the value of the house in which you live or your car.</p>
<p><a href=“http://www.ifap.ed.gov/efcformulaguide/attachments/111609EFCFormulaGuide20102011.pdf[/url]”>http://www.ifap.ed.gov/efcformulaguide/attachments/111609EFCFormulaGuide20102011.pdf</a></p>