Definition of voluntary or mandatory retirement plan, 401(k) in FAFSA?

Paying for College
1

Regarding a retirement plan, how do we know if it is mandatory or voluntary? I searched and could not find an answer to this question.

The school my dad works at requires a mandatory 401k. So is his retirement plan mandatory? By the way, there is only a “DD” code in box 12 in his W2 form.

If my dad’s 401k is considered as voluntary, my EFC is $5800 and I am NOT qualified for Pell Grant.

On the other hand, one college I got accepted gives me a different EFC of $4900, and consequently I am qualified for a $825 Pell Grant, presumably by removing the 401k in FAFSA as it is mandatory. Our family’s finance is simple, only that 401k could be make the difference.

Any gurus here can give me some inputs? Thanks.

2

Code DD is the cost of employer-sponsored health coverage. Elective (voluntary) employee 401(k) contributions would be coded D.

3

Are you sure it is a mandatory 401k? The only thing I found was that the employer could require mandatory contributions only after giving notice that the employee could opt out, therefore making the contributions not really mandatory.

“In Revenue Ruling 98-30, the IRS determined that salary deferral contributions made to a plan that requires mandatory 3% salary deferral (401(k)) contributions from those eligible employees, who did not elect otherwise, would be valid elective contributions.”

4

If this is a public employee, he could very well have a required pension donation. It might not be. 401k, however.

5

I was a federal employee and did have a mandatory FERS contribution of 0.8% (all federal employees have that) but then also had a 401k. This seems to be a private employer that has a ‘mandatory’ or really an automatic contribution unless you opt out. Since you can opt out, is it really mandatory? On the other hand, it is not clear if this a before tax or after tax contribution since it is not on the W-2. It might be a Ross type contribution. Can’t tell.

6

You mean “Roth” which would indeed be after tax and therefore might not show up on the W-2.

7

Yes, meant Roth. OP said nothing was on the W-2, which to me means after tax. If so, OP, you don’t have to report it as it was already included in income.

8

AA is the box 12 code for Roth 401k contributions. There are other codes for Roth 403(b) and 457 plans.

OP, was there anything in box 14 of the W-2? Also, where did you get the number from to enter into FAFSA that gave you the $5800 EFC if not from the W-2? What number did you enter?

9

Only one W2 in my family as my mom does not work. It has:
Box 1: $52000
Box 3: $55000
Box 12: DD ~$10000
box 13 Retirement plan: Yes

some numbers that do not show up on W2 are:
health/dental insurance premium: ~$3000 ( pretax)
Flexiable Spending account : $600

notice that the difference between box 3 and 1: $55000- 52000 = $3000, which is the money that was put into my dad’s 401k.

When I put this number into FAFSA,

94a. Parents’ Payments to Tax-Deferred Pensions & Retirement Savings: $3000

My SAR report says:
“Based on the information we have on record for you, your EFC is 005789. You are not eligible for a Federal Pell Grant but you may be eligible for other aid. Your school will use your EFC to determine your financial aid eligibility for other federal grants, loans, and work study, and possible funding from your state and school.”

So this is what I did in my FAFSA, and never thought about it until this college gave me a $825 Pell Grant in the financial aid package. After talking to the financial aid office twice for assistance to understand this, I am still confused.

Now when I used the EFC calculator on this site: https://bigfuture.collegeboard.org/pay-for-college/paying-your-share/expected-family-contribution-calculator, and played around with the numbers, I found out that this $3000 could make the difference. Coincidently, if take out this number, the EFC will be $4928, which will lead to a $825 Pell Grant, according to this table, http://www.ifap.ed.gov/dpcletters/attachments/GEN1502Attach.pdf.

As my family finance is so simple, I could not not think anything else could make the difference. Either my 5789 EFC number is wrong, or this particular college is wrong.

My dad works at a public school. The school says that it is mandatory to have this 401k. But this does not necessarily mean it is mandatory for FAFSA, so I am seeking the definition for the question I posted originally: what is considered to be mandatory or voluntary retirement plan contribution?

10

I have a mandatory 414h contribution as a public employee, but it is presented as a 401k.

Where does it ask if retirement contributions are mandatory?

Mine are mandatory by law.

11

It looks to me like the difference between Box 1 and Box 3 is the $3000 for medical insurance which should always be pre-tax. The FSA contributions should also be reflected in the difference, I assume you rounded the box 1 and box 3 numbers. There being no code D in box 12 helps confirm this.

Did you ask your Dad if his 401k contributions were pre-tax? If so he needs to get a corrected W-2. If they were after-tax(Roth) contributions then that’s why there’s no code D and the amount doesn’t go into question 94a. If they were Roth contributions there should have been a code AA, my son’s employer did that, though maybe that isn’t mandatory.

12

Rhandco, does the 414h show up on your W-2 anywhere? The box 12 codes to include in question 94a are clearly shown in the question help:

https://fafsa.ed.gov/fotw1516/help/faadef23.htm

Your 414h could be in box 14 which is irrelevant or not at all on the W-2

13

W-2 box 3 is Social Security wages, which does not include amounts deducted for cafeteria plan items, such as health insurance and FSA/HSA contributions. Generally the difference between box 1 and box 3 will be pre-tax contributions to a qualified retirement plan, but it seems strange to me that there is apparently no code in box 12 that corresponds to the difference here.

14

There is supposed to be a 12D code if the contribution was to a 401k.

Is there any indication on a W-2 for a mandatory retirement contribution? I’d normally see that on a year-end paystub.

15

Are people using ‘401k’ as a shortcut for other accounts? I’ve heard people use 401k and then say ‘But it’s really a 403 account.’ Those are different types of accounts and, well, different for tax treatment purposes. Rhandco, if your account is a 414, it is not a 401k and that’s probably why it is not on your W2. Check with your HR dept.

OP, ask your father. It may not be a 401k. It’s not on his W2, so just answer the FAFSA questions asked. If you are doing a DRT for taxes, any changes will show up.