To all you parents who had to deal with the Financial Aid Ordeal-Help Por Favor!

Parent Cafe
1

<p>I was wondering how do some colleges assess your family income? My top 3 schools are:</p>

<p>Upenn
MIT
UT</p>

<p>and my mom was thinking of putting a the maximum amount possible of her income into her retirement fund so that we would less total family income so my chances of getting financial aid is better. However, I heard that some schools still look at a parent's retirement fund when they calculate the total gross income. Therefore, do these 3 schools do that and how do they measure a family's total income?</p>

<p>Thank you!</p>

2

<p>Recommend you get the book “How to Pay for College Without Going Broke.” Your library probably has a copy, though it is worth paying for the most recent revision.</p>

<p>Also, UT=?</p>

3

<p>I believe it may depend on the type of retirement fund.</p>

<p>On the FAFSA, under tax deferred pensions and savings, you would report what your parents contributed to retirement plans for the year, because it is basically taken out of the salary before taxes, and, so, reporting that amount gives an accurate idea of the actual pre-contribution salary income.</p>

<p>However, the actual amount of a retirement plan such as a 403B is not reported under parental “net worth of current investments” or under savings accounts.</p>

<p>So, it would seem actually counterproductive, with the FAFSA, to put more money into the retirement fund for this purpose, since that contribution is reported anyway. Probably to avoid just such a strategy!</p>

<p>The CSS Profile asks the same question about contributions to tax-deferred pension and savings plans. This is in the parental income portion. It also asks about untaxed portioins of IRA distributions and pensions. The parents’ retirement plan amounts are NOT reported in parents assets and investments under that section.</p>

<p>However, in the supplemental questions, which vary by college, there is a question about whether or not your parents have a tax-deferred pension and admonition to report that in the proper place (as I just described), along with a question on how much they contribute each month. There is still no place where your parents would have to indicate the total value of the plan.</p>

<p>There is no way to sneak this money into the pension and hide the income, basically, but also, the total value of certain retirement funds is not counted in the calculation of financial aid, to my knowledge. Someone else can jump in and correct me, but I am looking at the forms, and have done this many times each year.</p>

<p>In general, to be honest, we do not play any games with financial aid. We have a good relationship with the financial aid offices as a result, and when something happens that negatively affects our income, I think the relationship has helped.</p>

<p>At the same time, the financial aid folks will, themselves, coach you on certain things if you ask, as will the people at the FAFSA number given on the site. This is something you can just go ahead and ask about if you like, anonymously or otherwise.</p>

4

<p>I don’t recommend this for the simple reason that you are then tying up that money. If your mom should lose her job, become disabled, or have some other major income loss that money is in retirement and can only be taken back out by paying major penalties. Penalties which are more than the interest you would have paid on student loans.
You should definitely figure out if those schools require FAFSA and profile and read carefully about the Profile.</p>

5

<p>To summarize my answer, you can’t hide income like this: both the FAFSA and Profile require you to report your contributions to your retirement fund. This is under the “income” sections. </p>

<p>This is probably to prevent just such a strategy, and to get a real figure for income.</p>

<p>(The retirement fund itself does not have to be reported under assets, however.)</p>

6

<p>As Compmom said…if you are filing the 2010-2011 FAFSA or Profile for aid for that school year, you will be using 2009 tax information on the forms. The amount your family contributes TO their retirement accounts in that year is added back in as income for that year. The balance in the retirement account, however, is not counted as an asset. There are dollar limites on the amount you can contribute to these accounts annually as well…and your mom may find that she can’t put as much as she thinks into them.</p>

<p>And as stated above…it WILL tie up your money.</p>

<p>Another thing to do…run your financial aid numbers through one of the finaid calculators. Financial aid is LARGELY based on income. You may find that you wouldn’t qualify for aid even with more going into the retirement account.</p>

7

<p>Upenn
MIT
UT</p>

<p>Are you in-state for Texas?</p>

8

<p>

The amounts in the retirement accounts are not counted as assets. But you cannot reduce income this way.
The FAFSA formula adds back any pretax retirement contributions to the AGI before calculating the EFC. In fact pretax contributions actually increase the income available to the EFC because it reduces tax and and tax is an allowance against income in the EFC formula. Less tax = less deducted from income in the EFC formula.</p>

9

<p>OP, your post reads to me as that your family could afford all these expensive schools such as Penn and MIT. All you are asking is that how to get more need based FA by shifting income placements. </p>

<p>There are many EFC estimators on line. you could go and play with all the numbers. You could also log into CB profile and see all the questions. All for Free.</p>

10

<p>* my mom was thinking of putting a the maximum amount possible of her income into her retirement fund so that we would less total family income so my chances of getting financial aid is better. However, I heard that some schools still look at a parent’s retirement fund when they calculate the total gross income*</p>

<p>THis was already clarified above as why it doesn’t work for the year that you put your income into retirement- but it can’t be emphasized too much, because it alters a great deal your income for tax purposes as compared to altering income for FAFSA.
work it out both ways and see what is best for your family.</p>

11

<p>If your mom has younger children, it would be a good thing to shelter the income by putting it in a qualified retirement account. But as explained so ably by several others, it won’t help you next year. The book dt123 recommended is terrific!</p>