<p>I'm wondering if anyone can give me insight to this.</p>
<p>I filed FAFSA and recently handed in Verification worksheets + signed tax returns. My parents' income has stayed the same from last year. The amount of savings, checking, etc., they have remain similar. The only difference is that they've allotted some money toward an IRA. Is that why my EFC is dramatically higher ?? Like my mom put it, combined it's all the same amount, except allotted to different places. Can anyone explain this? I'm on the fence on whether or not to contact the finaid office and ask what's up.</p>
<p>First of all, double check your FAFSA line by line to make sure you didn't enter anything incorrectly. If you have the FAFSA based on the previous year's income, you can compare the two. Is the money allotted to the IRA "extra" money compared to the previous year --- that is, did your parents earn the same amount of money when you include the retirement contribution, or is the retirement contribution in addition to the income they earned in 2007? Money contributed to retirement accounts is untaxed, but it is considered available income for your family to spend for college. Say your parents had income of $60k in 2006, with no retirement contribution. Then last year they had income of $60k PLUS a $10k contribution to retirement. The retirement contribution is considered in the financial aid formula as $10k they had available to put toward tuition. In effect, the income available is $70k, not $60k. This could be the difference.</p>
<p>Are you a returning college student? Did you have a sibling in school last year who won't be in college this year?</p>
<p>If you can't figure it out, call your financial aid office.</p>
<p>Hi kelsmom, thanks for your input! I understand what you're saying, but in effect, to follow your example, last year my parents had 60k$ and this year they have 50k$ PLUS a 10k$ under IRA. (Same amount of money, but different allocation.)</p>
<p>Re your questions: yes, I am a returning college student. No change in # of family members in college.</p>
<p>Check and see what numbers were put in for the worksheets -- they are the ones that mess me up!</p>
<p>did you earn any money or were awarded any scholarships that might be on the FAFSA? scholarships and work-study shouldn't count against you -- but that is where things get tricky if numbers aren't inputted correctly</p>
<p>Worksheets (make sure your deducted any scholarship/grants moneys that you included in AGI)
IRA Contributions
Income Tax Paid.</p>
<p>The FAFSA formula isn't a mystery-- just a formula. You can also plug the FAFSA input for both years into the FinAid calculator (it will take 10 minutes or so), and it will give detailed output that tells you exactly where each portion of the EFC is coming from (parental assets, parental income, student assets, student income).</p>
<p>Remember also that student assets are assessed severely-- if you showed more in savings or checking than in the previous year, that can bump your EFC.</p>
<p>When I tried the FinAid calculator, my EFC indeed would be lower if I qualify for the simplified needs test. Otherwise, my EFC would the same one I have listed now in FAFSA. I don't know if I qualify for the simplified needs test. According to the info at finaid, I meet the income requirement, but my parents filed a 1040. Whether they HAD to file a 1040--and couldn't file a 1040A or 1040EZ, we're not sure. My dad gets housing allowance, and that's why my parents filled out 1040 instead of the shorter versions. What does that mean for me?</p>
<p>In order to qualify for the simplified needs test (under which the FAFSA formula ignores assets), your parents AGI had to be under 50K AND all family members were eligible to file 1040A or EZ.</p>
<p>So this could be the reason for the increase in EFC-- if assets were counted this year, and ignored previously due to the SNT.</p>
<p>Your parents can file the long form 1040 and still be eligible for the SNT, so long as they were eligible to file one of the short forms.</p>
<p>This is reported in FAFSA question #34 (for student) and Question #78 (for parents). So if you indicated in either of those questions that you or your parent's weren't eligible to file the short form, you disqualified yourself from the benefits of the SNT.</p>
<p>Here's the guidance FAFSA provides re: answering the question:</p>
<p>"In general, you are eligible to file a 1040A or 1040EZ if you make less than $100,000, do not itemize deductions, do not receive income from your own business or farm and do not receive alimony. You are not eligible to file a 1040A or a 1040EZ form if you itemize deductions, are self-employed, receive alimony or are required to file Schedule D for capital gains. If you filed a 1040 only to claim Hope or Lifetime Learning credits and you would have otherwise been eligible to file a 1040A or 1040EZ, you should answer "Yes" to this question. If you filed a 1040 and were not required to file a tax return, you should answer “Yes” to this question."</p>
<p>Oh-- OK. The amount you include on Worksheet B (untaxed income) gets added to the AGI for your parents in the FAFSA formula (FAFSA considers this available income). So this amount won't disqualify you from the SNT, since it doesn't change the AGI on the 1040. But if your parents had a housing allowance this FAFSA but not last, that would result in increased EFC.</p>
<p>
[quote]
your parents AGI had to be under 50K AND all family members were eligible to file 1040A or EZ.
[/quote]
Actually just the parents have to be eligible to file a 1040a or 1040ez. I think it used to be that the whole family had to be eligible but it changed in the last year or so. (I only know that because my daughter sold her few shares to pay some expenses and had to file a 1040 and i thought we were screwed!!)</p>
<p>You said your dad got a housing allowance. Is he a member of the clergy? If so, he would be required to file Form SE which means he would have to file Form 1040, and you are ineligible for the simplified means test. (Off the top of my head I'm not sure how housing allowances are treated for other professions.)</p>
<p>Also, if your parents itemized deductions I think you are ineligible for the simplified means tests.</p>
<p>"Hi kelsmom, thanks for your input! I understand what you're saying, but in effect, to follow your example, last year my parents had 60k$ and this year they have 50k$ PLUS a 10k$ under IRA. (Same amount of money, but different allocation.)"</p>
<p>FAFSA assumes your parents' 10k$ is available for college, including the amount of it that represents deferred income tax. In the previous year, your parents probably paid as much as 2.5k$ in higher taxes without the IRA deduction. FAFSA reduces your EFC for any taxes paid. So, if you put 10k$ into an IRA, your EFC will go up by the amount of deferred tax.</p>
<p>Note it might still be worth it to invest in the IRA if there are employer matching funds or if the money can grow for many years before retirement.</p>
<p>Also, it may be possible to convince your FinAid office that the IRA contribution should be considered an asset instead of income for FAFSA purposes, especially if there are special circumstances that caused the change in IRA contributions. If the contribution had been made before you enrolled, it would not have been treated as income.</p>
<p>
[quote]
Also, it may be possible to convince your FinAid office that the IRA contribution should be considered an asset instead of income for FAFSA purposes, especially if there are special circumstances that caused the change in IRA contributions.
[/quote]
Special circumstance adjustments have very strict criteria and are based on *unusual *circumstances such as loss of income or high medical expenses that are not addressed by the normal EFC formula - they are not allowed to be made to circumvent the intention of the rules - I cannot imagine a circumstance where it would be allowable for an IRA contribution to be treated as unusual circumstance and it is extremely unlikely a financial aid officer can be convinced to change the treatment of an IRA contribution.
[quote]
If the contribution had been made before you enrolled, it would not have been treated as income.
[/quote]
I have never heard this. The first year everyone applies for finaid their contributions to an IRA will be from the previous years income which will always be before they enroll. If what you are saying is the case then every first year applicant would be able to have their IRA contribution ignored which goes against the whole basis of special circumstance adjustments - that "Data element adjustments are permitted for conditions that distinguish a student from among a class of students, as opposed to conditions that exist across a class of students."</p>
<p>The type of circumstances I was referring to are exactly what you describe. Let's say you made a high IRA contribution last year and this year you were diagnosed with cancer and had to quit working. It would be unreasonable to expect you to continue to make high IRA contributions, or have their equivalent available to pay for college.</p>
<p>As for the contribution being made before you enrolled, I meant before your first FAFSA calculation year.</p>
<p>
[quote]
As for the contribution being made before you enrolled, I meant before your first FAFSA calculation year.
[/quote]
Contributions made before the first FAFSA base year will have no affect whatsoever on your EFC. If you made IRA contributions in 2006 but are doing the FAFSA for 2008-2009 school year which uses 2007 1040 information then the 2006 contributions are not considered at all. Only those made in 2007.</p>
<p>
[quote]
Let's say you made a high IRA contribution last year and this year you were diagnosed with cancer and had to quit working. It would be unreasonable to expect you to continue to make high IRA contributions, or have their equivalent available to pay for college.
[/quote]
</p>
<p>If someone has to quit work or lose a job or have medical expenses then yes that can be used for a special circumstances adjustment where input income to FAFSA may be adjusted. But it would the income figure that would be adjusted - not in relationship to an IRA. So if the AGI for 2007 were say $60,000 and there were $15,000 of medical expenses the AGI can be reduced by @ $15,000 (actually less because there is an amount built into the income protection to allow for some medical expenses - the $15k would be reduced by that amount). Or if proof can be shown that the current years income will be only $40k then the AGI can be adjusted to reflect that. </p>
<p>But the OP has not indicated that there has been a major change in circumstances that would justify a special circumstances adjustment. The fact that they contributed $10 to an IRA and this may have had a negative effect on their EFC is not a basis for an adjustment. Just something they need to be careful of next year.</p>
<p>Your analysis is correct as far as it goes. However, my point is that if the IRA contribution stops, the EFC will go down because more money will be paid in taxes in the current year. Looked at from the opposite perspective, if you increase your IRA contributions, your EFC will increase in proportion to the amount of deferred tax.</p>
<p>If that is the point you were making then I was completetly misunderstanding your post.When I read this
[quote]
Also, it may be possible to convince your FinAid office that the IRA contribution should be considered an asset instead of income for FAFSA
[/quote]
</p>
<p>that you were talking about the current years FAFSA and EFC based on 2007 tax returns rather than stopping or increasing future contributions. Stopping the Ira contribution in future years will not affect the EFC this year - i thought that was what we were talking about. I was not making any analysis of how future IRA contributions would affect the EFC.</p>