Help me understand IRAs and other retirement account FAFSA calculations

My husband filled out the FAFSA and the EEFC came out way higher than I thought it would. Thankfully he filled out last year’s by mistake, so we will just need to resubmit for this year after October 1st.

In discussing different questions he said he reported the money I have in my IRA. That money has been in there, untouched, for about 12 years. I have not contributed to it since it was rolled over.

Did he misunderstand or does the FAFSA actually ask how much money you have in an IRA? Why would they ask if they don’t count that as an asset?

It’s distributions they count as income.

Not in the system looking to see if retirement asked separately but the best thing to do is download from the IRS. Takes the guessing out.

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Actually if this person did a rollover in the tax year for the fafsa, be careful if you use the data retrieval tool. It will treat the rollover as income unless you check a teeny box indicating you had a rollover.

Regardless. The money IN your IRA or TSA accounts is not considered as an asset. However the contributions you made during the tax year for the FAFSA you are completing are added back in as income.

And if you receive distributions those count as income.

The money in these accounts is not considered an asset like your regular bank accounts.

I haven’t touched the IRA account in years. I have not contributed to it, or withdrawn any money from it. My understanding is it won’t count as assets, but do you still report the amount in there? I just want to make sure we are understanding what to report or not correctly.

We tried to do the IRS retrieval but it gave us an error which said to call for identity verification. Calling the IRS seems impossible.

When October 1 comes, use the data retrieval tool. See what happens. Your balance in your IRA doesn’t even appear on your tax form. Any contributions you made to your tax deferred retirement accounts does appear. Any tax deferred contributions will be added back in as income.

You do not report IRA or TSA balances as assets.

@kelsmom did I explain that clearly enough?

Thank you. I will try the retrieval tool. Hopefully it works next time. For this past one it said we had to call the identity protection unit, and as you might imagine it’s impossible to get through to anyone there. Thanks for your input and explanations!

@thumper1 explained correctly. Balances in qualified retirement accounts are not reported anywhere on the FAFSA, so the amount should be left off.

I am more concerned for you with regard to the request for you to contact the IRS for identity verification. I worked in financial aid, and I helped numerous people who couldn’t use the data retrieval tool because they weren’t inputting their address exactly as the IRS had it listed on their last tax return. I never heard of anyone having to do identity verification, though, in order to use the tool. It could be something new & not a big deal … but I don’t have a clue what triggers that.

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@kelsmom Thank you. Yes. I’m a bit concerned as well. I hope someone hasn’t been using our social security number or something. We will be calling them this week. I hope we are actually able to get through to someone. Last time I had to call the IRS I was on hold for 3 hours and when they finally answered the representative told me to call back because their computers were down. It’s a nightmare.

I hope you can get through with someone soon. Hopefully, it’s not a big deal. Let us know what happens.


However, some schools also require the CSS Profile to decide on financial aid — which is a very thorough assessment of ALL your family’s assets of any kind.

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@DigitalDad some schools do ask for retirement plan balances as a supplemental question on the Profile. BUT there is no evidence that these balances are expected to be used for college costs.

It is felt that this question is for informational purposes to make sure some family doesn’t have a retirement account balance that doesn’t align with their income. For example, if a Pell eligible family had $2,000,000 in retirement funds, someone could justifiably ask…how.

Hm - I checked the print-outs of CSS profiles since 2017 (in which case she was only applying to 10 or schools) and every year the CSS profile included sections about each parent’s assets with these questions:

  • IRA, Keogh, 401k, 403b, or other tax-deferred retirement plan
  • Plans to draw social security upon retirement
  • Employer sponsored retirement plan
  • Civil service or state sponsored retirement plan
  • Union sponsored retirement plan
  • Military sponsored retirement plan
  • Other type of retirement plan
  • Current value of tax-deferred and after-tax retirement, pension, annuity, and savings plans such as an IRA, Roth IRA, Keogh, SEP, 401(a), 401(k), 403(b), 408, 457, 501(c)*

Those appear as one of the sections in the regular flow of filling out the CSS profile - there was never any indication that these were “supplemental/institutional” questions - and certainly appeared in the year before she had enrolled in any ONE of them.

That might very well be - although with changes to laws regarding penalty-free withdrawal of IRA balances for Higher Education Expenses, one might justify that those are “available” funds.

@DigitalDad withdrawals from those tax deferred accounts are considered income. That’s different than the balances in tax deferred retirement accounts…I’m sure you already knew that. Penalty free does not exclude you from paying taxes. @BelknapPoint am I wrong about this. I would love to be wrong!

Naturally - then again, the same applies to any family income that is counted: considered income and taxable!?

I was simply wondering out loud, whether the once-reasonable presumption “question is for informational purposes” might possibly have changed, once that “penalty” hurdle had been removed. Without the penalty when used for Higher-Education expenses, IRA/Roth IRAs would become equivalent to any other investment assets (even if the intended savings were originally meant for retirement) - similar to anyone who is not covered by a 401k and was not eligible to make IRA contributions, may have “intended” certain investment portfolios for long-term retirement savings.

I don’t know, or assert, either way. But, if the law makers’ intention was to “unlock” IRAs precisely so that one COULD afford to pay for college, it wouldn’t be a huge leap for colleges to follow that lead. Frankly, If I had to decide how to most fairly distribute a limited amount for financial awards, it would be quite reasonable to treat a family with $50,000 in their IRA different than a family with $2,000,000, now that the law explicitly designates these funds as usable for college tuition (after taxes).

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