In general, I don’t believe that an inherited IRA needs to be reported on FAFSA as either income for the year inherited or as an asset in the year the FAFSA is completed. Distributions from the inherited IRA to the beneficiary are a different matter.
Thanks. And, yes, any (required or not) distributions are income in the year received (they’re on the tax returns!).
Be careful here. Since Fafsa and CSS don’t specifically ask about inheritances, some basic understanding has to come from Fed tax guidelines.
Turbo Tax puts it this way. “Inheritances are not considered income for federal tax purposes, whether you inherit cash, investments or property. Any subsequent earnings on the inherited assets are taxable, however, unless it comes from a tax-free source. You will have to include in income the interest income from inherited cash in a bank account, for example, or dividends on inherited stocks or mutual funds.”
The inheritance is not technically “income,” as in “worked for.”
I don’t see how one adds back retirement contributions made from what’s really assets. If you took money out of a savings account to make the contribution, that’s different than pre-tax deductions from paychecks.
The OP seems to have left the room…and in any event isn’t answering the questions being asked.
I wish @granolakrunchr would answer my very simple question. Are your numbers just what the FAFSA SARS are giving for your two college students.
OR are you referring to the net costs the colleges are expecting you to pay at these two Profile schools?
Without the answer to this question, it’s impossible to help you, you seem to be mixing up the FAFSA EFC with what the colleges are expecting you to pay.
Do you think you are the only one whose annual contributions to retirement accounts are added back in as income? If so…you are wrong. Contributions to tax deferred retirement accounts made in 2018 from both parents…are added back in as income and this is in the FAFSA formula calculation. It’s not a secret. So if both parents are contributing the max to their tax deferred retirement accounts, this could easily add $40,000 to their income. AND this poster said one parent is self employed IIRC. IIRC, self employed have a different threshold for contributions to their self funded retirement accounts.
The OP needs to answer some questions if they really want help.
If this is a FAFSA EFC question ONLY that is very different than if this is a net cost to the colleges question…especially at Profile schools.
That $200,000 of the asset is an inheritance is not important. What IS important is that the $200,000 is an asset. Not the inheritance part.
The thing for OP really is that if they have applied to too few options (I think this might have been a thing for kid 1), then consider a gap year and apply more strategically and spend some constructive time researching options. As OP is in AK it is more than possible that lots of more desirable schools than their instate will offer great merit $$ for her kid, and look for more generous private options with merit, and WUE options are on the table.
IMO it is getting too late in the game to be looking for affordable schools offering big merit this round. Is the kid not an NMF? AK would be a nice NMF state.
Here’s a common way this could happen: a FAFSA reporting parent takes money from savings and uses it to contribute to a traditional IRA, which allows the parent to take a tax deduction. This IRA contribution, made using money from a savings account (an asset), would need to be reported as “Untaxed Income” in response to FAFSA question 92.b.
I guess it depends on how you define “worked for.” Interest earned on a standard savings account is taxed as income the same way as income earned by a person for digging ditches. Has the savings account interest been “worked for”?
No question that interest earned is taxable. “Any subsequent earnings are taxable.”
Savings growth may be taxed same, but savings are an asset.