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.
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.
But really…regardless of your choice…I’m really not sure this is going to Net you MORE need based college financial aid.
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.