<p>I am kind confused, I found out the more 401k contribution for year of Tax return (less AGI of TAX return) but the EFC figure will not be lower and even a litter higher than when put lower 401k contribution year.</p>
<p>Can someone explain why has such scenario? or advise how to arrange 401k contribution %.
Thanks!</p>
<p>I think the idea is that 401k contributions were a resource which could have been used for college. So while they will lower your income tax a bit, they won’t help your EFC.</p>
<p>Contributions to a 401k will be added back into your income, so yes, you will pay less in federal income taxes, but the colleges view it as income.</p>
<p>It’s true that there is no FAFSA benefit for 401(k) contributions made in the index year. And the EFC may go up by a fraction due to the lower amount of FIT reported and by an even smaller reduction in the state tax calculation. But, that asset is excluded from reporting in future years, which is a benefit of 5.6% of the value, year after year, if your assets exceed your asset protection allowance. </p>
<p>Of course, everyone should balance their retirement and other savings/investment plans according to their own needs/situation so there isn’t a “one size fits all” way to give advice on an internet board. Do you have a financial planner or other professional? That would be the best person to ask for advice since they know your situation. If you want general advice/info as it relates to college planning, “Paying for College Without Going Broke” is a good place to start and may be available at your library or through amazon. It’s updated annually, so try to get a recent edition!</p>
<p>Essentially the government is saying feel free to fund your retirement before your kids hit college age and they won’t hold it against you. But while they are in college, that money should go toward college expenses. When your kids are out of college, you can resume funding your retirement. Easier said than done, especially for older parents to resume afterward but then they had more time to contribute to their retirements before their kids were born. It’s those early contributions that have been working hardest for you anyway.</p>
<p>Though for families with two or three kids spaced three or four years apart, it is completely unrealistic. I don’t think many families can even think about not making major 401K contributions for 10-12 years in their late forties and fifties.</p>
<p>Agreed, arabrab. Especially when many of us – including myself and my husband – won’t be receiving pensions. It’s all up to us.</p>
<p>It is essential for us to fund our retirement accounts on an ongoing basis, as well. With that in mind, we understand that it will impact our EFC. Our children selected colleges that we could afford, even while putting money in our 401k/403b accounts. The key is to find a school that meets your needs, both academically AND financially.</p>
<p>EFC is just a number. It means nothing to the individual family. What matters is this: How much can you afford? How much will a given school cost YOU?</p>
<p>Thanks for all your feedback, it’s clear to make further judgement. I think IRA contribution will make similiar results. Am I right?</p>
<p>Meanwhile, can someone advise where I can find EFC for CSS profile formula guide? Thanks!</p>
<p>Yes, IRA contributions will have the same result.</p>
<p>You can’t find the EFC for Profile … each school uses the info collected in its own way, for purposes of allocating their institutional funds in a way that best fits their needs.</p>