My poverty situation is relatively new as child support has ended for both my kids recently. So I did not apply for means tested benefits though it looks like I am qualified for reduced lunch (now that I have no kids in school). Last year’s AGI is 32000.
Josie, the amount you contribute to a traditional IRA is added back to your FAFSA as income even if it never was income. So if you put $6500 into an IRA for tax year 2015, it won’t be in your assets but will get added to your income. If you put $6500 into an IRA for tax year 2016 in Jan, it won’t be in your assets and won’t be added to income in 2015 but will be in 2016 when you are applying for 2017-18 FAFSA.
As an example, if you make $30k and contribute $6500 to an IRA, your AGI on taxes goes to $23,500. FAFSA will add that $6500 back in so your income is back to $30,000 for FAFSA purposes. But the $6500 is no longer in your bank account so it isn’t assessed the 5.6% on assets for the EFC.
It might not help that much but it isn’t going to hurt, either. And contributing to an IRA is always a good thing.
I see. Thank you.
Contributions to a Roth IRA are not added back in. You could contribute $6500 for 2015 and then again for 2016.
But they aren’t tax benefited either, so her income on FAFSA would be the same with or without the Roth IRA, and her taxes will be lower with the deduction for a traditional.
I suggested Roth in Post #6. To me it makes no sense to do a traditional deductible IRA. OP says she is at the poverty level.
@thumper1, that was what I was trying to say - if she couldn’t file the 1040A, she might still qualify for simplified needs if she was eligible for a benefit program.
My self employment tax is the killer on my tax burden. That is not effected by IRA contributions, right? So a Roth isn’t going to hurt me much on tax liability but could benefit my kids FA? Also now I am thinking I can go ahead and pay my college tuition (I can get two semesters of tuition paid before next FAFSA filing) with the proceeds rather than take out a student loan. Thoughts?