NJSue

Yes, I do agree with you that it's better to take care of yourself first financially so you won't be a burden on your adult child. Part of my ambivalence is that I was one of those who assumed I would do "whatever it takes" to send my kid to any school she could get into. Now I'm beginning to realize that the financial tradeoffs are just too high.

swimcatsmom

I can't see any logic whatsoever in telling in telling people to contribute less to a company 401k especially when there are matching contributions involved. Especially for FAFSA schools (i have no clue about CSSprofile schools). For instance say you can contribute $1000 and the company matches that $1000. If you contribute and save the taxes on the $1000 then at the 35% tax bracket you would save $350 in taxes increasing income for FAFSA $350. The very highest % of income taken toward the FAFSA EFC is @ 47% so the EFC may increase by 165 because of the $350 tax savings (350 increased income x 47%). So you may lose $165 in aid but you have saved $350 in taxes plus you have made $1000 in matching funds. $1350 in your 401k is surely far better than $165 in student aid?

By not contributing to the 401k the student may get additional aid of $165. Even if that aid is grant money you have paid $350 more in taxes and lost matching funds of $1000. So that $165 cost you $1350. And it is entirely possible the extra aid would be in loans or that there would be no additional aid.

The only exception I can see is where you are close to some sort of cut off. For instance my daughter gets the SMART grant which requires Pell eligibility. If an extra $300 in income to us made her not Pell eligible then she might not lose much in the way of Pell funds but losing the Pell eligibility would cost her $4000 in SMART grants. There will be some cases like that. But in the vast number of cases it would not be sacrificing more $$$s in one place in order to gain less $$$s in financial aid.

Am I missing something here?

kelsmom

The bottom line is, the only reason that untaxed contributions to pensions is reported is because that is income that the parent earned. It "could" have been used for college costs, just like any other earned income. It's choice to use it for retirement.

A very GOOD choice, if you ask me.

I fund my retirement first. The kids have that much less for college. Take if from me ... my parents are now in need of expensive care related to dementia ... it's really, really important to save for retirement. My employer kicks in 10% if I save as little as 5%. I think I'd be stupid to pass that up.

And yes, for the many who get only loans for financial aid ... you won't get more by saving less.

cptofthehouse

FAFSA's treatment of retirement funds is one of those areas that are inconsistent in treatment. If YOU are putting away your own money for retirement that was accessible to you, then it is considered part of income. Employer contributions whether as a match or just funding the plan are not so considered. If YOU have money set aside for your old age and it is not in a qualified plan, it is considered fair game for assets for college. Just the way it is set up.