<p>Rising college sophomore at a private uni wants to open a Roth IRA with some of his summer earnings. He is on generous FA. I don't want a Roth to endanger receiving the same level of FA in the future. Any idea how a student Roth is seen by the CSS Profile?</p>
<p>Sorry I’m not answering your question, but what else would he do with the money? Other than putting it in a 529 account, I can’t think of anything that would be a better choice, for FA eligibility purposes, than opening a Roth IRA.</p>
<p>He would just leave it in his money market account in his bank.</p>
<p>My kids had Roth IRAs beginning in HS when they started earning money. </p>
<p>I don’t know how individual schools evaluate money in Roths via Profile, but my assumption is that money in retirement accounts would be treated the same or with less impact than money in regular accounts, including MMs. I haven’t seen any indication that colleges treat retirement money with more weight than that in cash, checking and savings. If he’s not going to spend it, I can’t see how opening a Roth would hurt the calculation of his financial need.</p>
<p>Thanks, entomom. Helpful as always. :)</p>
<p>After posting, I started to think about it and decided that my worry was more based on appearances than the actual dollar amount – like the college would think “Why are we giving this kid money when he’s got a retirement account?”</p>
<p>^^^
Alternate line of thinking: “Hey, this kid’s financially savvy and disciplined enough to open a Roth IRA while still in college. He’s probably a good investment for our FA dollars.”</p>
<p>This is up to the school’s financial aid policies. As a rule, any part of the student financial aid sitting as assets on the day FAFSA and PROFILE are filed, are not includable assets for calculation of expected contribution. For FAFSA purposes, student assets are given a direct hit of 20% directly on the asset with no asset protection allowance. PROFILE calculations do not have to follow the 20% rule. They can do whatever they please. I know some schools that use 30%, count other assets, and it is possible a school will look at assets in qualified plans. They do ask for that info, you know,</p>
<p>Consider, it may have the same impact on FA if it is in a Roth or a savings account, but if it’s in a Roth, he won’t be able to pull it out to use to pay for school. So if student assets are tapped at 20%, he should keep at least 20% (plus the applicable percentage of his annual income, above the set-aside) available to pay his expected contribution. Unless you are going to pay that.</p>
<p>@Youdon’tsay Ask your private uni how they treat student retirement accounts.</p>
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<p>I don’t believe that this is true. Roth contributions can be withdrawn at anytime for any reason, without tax or penalty. Earnings from a Roth IRA that has been open less than five years can generally be withdrawn free of penalty, but subject to income tax, in a number of situations, including when used for qualified education expenses.</p>
<p>Oops…ETA…check to see how colleges treat student retirement accounts. That is the key question.</p>
<p>Oh, you are correct. I was thinking that the five-year thing was a penalty, but you’re right, it’s just subject to tax. :"> </p>
<p>He called today, and they told him it wouldn’t make a big difference. I need to get details.</p>
<p>It wouldn’t make a “big” difference? The FA office needs to be able to tell him exactly what kind of difference (if any) it will make.</p>
<p>How much is IN that account. If it’s $1000, and they treat it as a student asset, it would add $200 to your family contribution.</p>
<p>According to the OP, the money is in a money market account now, and the question is how (if at all) would investing it in a Roth IRA change the FA award.</p>
<p>“A big difference” is a subjective thing. Is $200, as Thumper says a “big difference” to the person? The FAFSA rules hit up student assets at 20% directly towards the EFC. They exclude qualified plans as assets, however. PROFILE schools can include any assets even those so excluded and they can use any percent they want, any forumula they want The question is whether the student IRAs are subject to ANY percent of it being part of what the college uses to calculate the student contribution. The answer is “yes” from what Youdon’tsay, reports, but “not a big difference”. They do include that asset, but may include it in a way that is not a straight up percentage, might give some allowance to it, might be a small straight up percentage. The answer gives you no idea what they do at all. They could say that student assets don’t “make a big difference” referring to the over all impact it has made on their financial aid packages.The answer is worthless as to the specific impact, but is a “yes”.</p>
<p>He may have gotten more information; this is just what he relayed to me in a quick phone call about another issue. Today is his last day at work so tomorrow we’ll have more time to talk about what they specifically said. It might merit another call.</p>
<p>Youdontsay, there may be no straight forward answer. PROFILE schools request qualified account info which does not even appear on the FAFSA. That they want to see the amount, could mean that they will, under certain circumstances, use them in need formulas. But they may not even have a real rule or cut off about it and let it go to professional judgement. A parent, with say, a $100K in a 401k, might get a full pass on that account. A parent with $10 million, or even one million, certainly a hundred million will have that amount counted as assets that could be used towards their children’s college. </p>
<p>So it is with student IRAs, 401Ks, and Roths, since schools can do what they please with their own money. The amounts and cut offs are probably more draconian for the student as they are for all of the student’s assets and income. They are expected to pay more of their resources towards college. They have no asset allowance before their assets are hit under the FAFSA formulas, and I can tell you straight out that a number of PROFILE schools hit up the student money for more than the 20% FAFSA does.</p>
<p>So it all comes down to what you and your son consider “not much” That is not an amount. To some people “not much” is what can make a big difference to others. IMO, those on financial aid should try to fund any of their accounts with assets in them with aid money like loan proceeds, work study funds, using other money up first. or get rid of the money by buying things preemptively and by repaying parents with expenses so that they have a big fat zero in assets that are usable for the calculations. Because some schools are very hard on students, and take those amounts and carry them forward for future years (UChicago is an example and they spell it out how they do it; other schools do it but won’t tell). Trying to get info on the fin aid formulas is very difficult outside of generalities. </p>