FAFSA - What to do with daughter's $12K savings account?

Paying for College
21

<p>Moving the student’s 3K to an IRA would take the asset off the table for FAFSA purposes, but it also takes it off the table for college purposes (unless you want to pay a hefty penalty). And remember, moving funds to an IRA doesn’t take them off the table as income for the year in which they were earned (although students get an income protection allowance of nearly 4K, so that may be moot).</p>

<p>Fish-- use one of the EFC calculators, and see whether you’ve even in a position, asset-wise, where any of this makes a difference-- putting it all in a 529 vehicle which gets counted as a parental asset may have the same net effect on EFC as putting part in an IRA, given the parental asset protection allowance, without the downside of the IRA being unavailable for college.</p>

22

<p>IRA monies can be withdrawn with no penalty for IRS qualified education expenses similar to 529s.</p>

23

<p>Hmm. You’re right-- but the IRA distribution gets reported as income for that year on FAFSA, reducing next year’s potential aid. The 529 distribution gets more favorable treatment because it is excluded as income in the finaid formula, so it doesn’t lower your aid the following year.</p>

24

<p>Concur with sblake7. I’d put it all in the 529 to maximize availability of all $12k for college purposes and to have best treatment on FAFSA.</p>

25

<p>Question on the IRA- could a family put the $ in the IRA, take student loans, and then take the money out of the IRA to pay for senior year and the loans?</p>

26

<p>Don’t know-- here’s the controlling IRS publication, and it doesn’t mention loans:</p>

<p>[Publication</a> 970 (2008), Tax Benefits for Education](<a href=“http://www.irs.gov/publications/p970/ch09.html]Publication”>http://www.irs.gov/publications/p970/ch09.html)</p>

<p>I’d point out, though, that the IRA withdrawal is apparently taxable, whereas the 529 withdrawal is not. Seems to me the 529 has more benefits in a couple areas, when saving for college.</p>

<p>(Not a tax professional, just a Dad figuring it out as I go along).</p>

27

<p>Traditional IRA’s and Roth IRA’s are not treated the same. I do not believe taxes would be paid for for withdrawing the Roth IRA up to your contribution as you already paid taxes and didnot receive a tax break on the money. </p>

<p>Traditional IRA’s do allow a tax break so it makes since that you would owe taxes at the withdraw since you did not pay them when you opened the account.</p>