Thanks to everyone for your attempts to help. Let me clarify a few items that have been mentioned.
Three weeks ago was my first visit to this forum, when I asked for recommended resources to learn about how FAFSA works. BelknapPoint graciously provided links to the FAFSA form/instructions and the formula used for calculating EFC, suggesting that if I were willing to get my hands dirty it would be well worth it. Thumper1 also helpfully recommended “Paying for College Without Going Broke.” Off I went, downloading the FAFSA docs and ordering the book from the library, and I proceeded to administer a three week, self-taught crash course in financing college, with an emphasis on FAFSA. Both suggestions were worth at least twice what I paid for them, and as a result I have a very good handle on what our EFC is likely to be for #1 son’s freshman year; the only potentially moving parts left before we file in the fall are A) any effect I can have on our tax return before I file it in the coming weeks, and B) our assets, which may or may not be the same in the fall as they are now.
In the next few weeks I need to decide what, if anything, to do with some money sitting in our bank account. It’s already been earned. But the question is: where’s the best place to put it? Part of that analysis is understanding the effect my decision may have on financial aid. My research led me to focus on two logical options, in part because we already have each established - IRA and 529. My intuition told me that either of them was likely to be a better option than leaving it in the bank.
Our approach to saving for future needs over the past 15+ years has been pretty simple: money is money. Don’t worry so much about which pocket you should put the dollar bill in, just make sure you put it in your pocket. As a result, we view all of our long-term savings as fungible - they’re available to be used for both college and retirement. Because it was easy, and because I didn’t want to pay someone money that could otherwise be saved to tell me how to save my money, the vast majority of our long term savings is in vehicles traditionally used for retirement savings - 401k, 457, IRA. We have also established 529s, maintained a balance in our savings account, etc. Are some vehicles more advantageous for financing college educations than others? Sure. Would I redirect how some of our past earnings were deployed among those vehicles if I could? Probably. But Mr. Peabody hasn’t offered me the use of the Wayback Machine, so that isn’t terribly relevant. Assume that, given the savings we have, we’re fully cognizant of the need to allocate them wisely between college expenses and our retirement needs.
At this point, #1 son has no idea where he wants to go to school. We’ve done 3 college visits in the past 2 months to give him a taste of various settings (large public, small private, etc.). While I would like to have access to a crystal ball to determine where he’s going to go to college, how much he’s going to make in his first job, and whether I’ll still be around to know my grandchildren, I don’t. So I’m working with incomplete information, as most of us usually are. And he’s not going to decide where he wants to go to school within the next few weeks. Suffice it to say that our EFC is lower than the most expensive college he might attend and higher than the least expensive. So at this point, it is worth considering the possibility that he will attend a school that costs enough that he will qualify for aid, as privateID pointed out.
Therefore, far from an exercise in financial gymnastics, I’m simply trying to estimate the financial affects of a very simple, binary decision - whether it’s better to move the money in savings to my IRA or his 529. Rather than rely on gut instincts, senses, opinions, etc., we can run the numbers and see what the answer really is. The model created is a simplification of the situation (as all models are), but the results - if correct - hold: whatever the impact on the dollar I run through the model, the same will be true of the other 5,499 of them that will be deployed with it in reality. So we are talking about thousands of dollars in potential tax effects. Thus my request that someone else look over my analysis and correct any errors in logic or math.
With respect to CSS, I accept that they will treat certain items differently. But since FAFSA is sure to be required by whichever school he attends and CSS is not, I can’t worry about that now. (For what it’s worth, if #1 son were to pick among the three schools he’s visited so far, he would choose to enroll at a small, expensive [ie, costs more than our EFC], private school that doesn’t use CSS.) And inasmuch as my self-employment may be a huge variable, I don’t expect it will be; I operate as a consultant with no employees, essentially no assets, and generate relatively little income from it.
While I acknowledge my model does not account for differential tax effects on earnings between the two savings vehicles, I disagree that this is a big mistake. My time horizon (two years from deposit to withdrawal) is simply too short for it to represent a material difference. And even if we were to account for it, it would only further favor the 529, which is nearly twice as attractive as the IRA (assuming my analysis is correct).
Thank you to mommdc and PrivateID for referencing the Roth IRA. I had excluded it from consideration because I don’t yet have one set up and 5 years doesn’t do me much good for #1 son’s imminent college education. However, you comments have gotten me thinking beyond him to #2 son and #3 son, both of whom are HS freshmen. I’ll research the impact of plunking my money in a Roth, assuming it will be used for the twins and might free up some other resources that could be directed to the older one instead.
Sorry for the long-winded response, but I wanted to acknowledge the time and effort others have put into trying to help. And I hope my tone doesn’t come across as flippant, but rather light-hearted. I recognize that puzzles like this pale in comparison to those faced by many others, so I try not to take myself too seriously as I devote my energy to solving them.
Given the above, then, my original question remains: Does anyone have reason to believe my analysis is incorrect? Passing up on a large refund this year seems unwise (maybe because we’re so conditioned to sock money away for retirement), but the analysis suggests I’ll pay it back and then some a couple years down the road.