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401K vs Stock Purchase

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Replies to: 401K vs Stock Purchase

  • thumper1thumper1 Registered User Posts: 60,838 Senior Member
    @TryingToFigureItOut

    When will your kiddo start college?

    Any money earned this year will be counted on the 2019-2020 financial aid forms. 2017 tax form info used. So if you contribute to a 401k this year...2017...those contributions will be added back in as income with your 2017 income...but the balance IN those accounts will not be counted as an asset.

    If you buy stock options...imbeloeve these are counted as assets...and are counted as of the day you file the forms.

    But really...back to my original comments....I'm guessing you are doing all these financial gymnastics for none to minimal financial aid gain.
  • TanbikoTanbiko Registered User Posts: 144 Junior Member
    You should put money into Roth 401k if you have this option. Paying more taxes during college finaid base years will decrease your EFC.
  • thumper1thumper1 Registered User Posts: 60,838 Senior Member
    Whether a Roth or a regular tax deferred IRA...for financial is purposes...the contributions will be income.

    If a Roth...they will just be part of your income...right?

    If a tax deferred...the contribution will be added back in as income for financial aid purposes.

    @BelknapPoint what would be the advantage of a Roth ITA over a tax deferred 401k for financial aid pirooses?
  • BelknapPointBelknapPoint Registered User Posts: 2,457 Senior Member
    BelknapPoint what would be the advantage of a Roth ITA over a tax deferred 401k for financial aid pirooses?

    While additional taxes paid upfront when funding a Roth 401(k) vs. funding a traditional 401(k) may garner more need-based aid, there are many other things to consider when determining whether or not this is a good move for the family's overall financial picture. Most importantly, it's highly doubtful that the increase in financial aid would even come close to the additional tax that would need to be paid.
  • TanbikoTanbiko Registered User Posts: 144 Junior Member
    edited June 17
    No, finaid increase will not come close to the additional tax:)
    My child is a rising college senior who attends one of these generous schools on finaid so we spent 4 years under the financial microscope. We are at the EFC point where every additional $1K available to pay for school (as per their calculations) increases our EFC roughly by $500. So, for example, if we are in the 25% tax bracket then tax on 24K will be 6K but our finaid will increase by $3K.
    Taxes will have to be paid anyway, either now or later and future tax rates are difficult to predict but if you are in this college situation then Roth has this additional advantage over the traditional plan.
  • BelknapPointBelknapPoint Registered User Posts: 2,457 Senior Member
    Taxes will have to be paid anyway, either now or later and future tax rates are difficult to predict but if you are in this college situation then Roth has this additional advantage over the traditional plan.

    Yes, the taxes will (probably) have to be paid anyway. My personal opinion is that it's better to fund a Roth IRA now (and pay the taxes now) instead of a conventional IRA (and pay the taxes later, when retirement distributions are taken), under the theory that by the time I'm in retirement the government will have had to increase tax rates to pay for entitlements and keep the deficit under some measure of control. However, for those with kids in college who need every dollar to fund higher education, these years may be the time to put off the taxes until later (retirement), when it may very well be easier to handle the tax payment. The decision making here will be unique to every family, with many different factors to consider, as I make note of in my post above.
  • thumper1thumper1 Registered User Posts: 60,838 Senior Member
    But really...regardless of your choice...I'm really not sure this is going to Net you MORE need based college financial aid.

  • TryingToFigureItOutTryingToFigureItOut Registered User Posts: 5 New Member
    It wasn't so much of "net me MORE aid", it was more a question of which would harm me less.

    Thank you everyone for your input.
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