How do I decrease my EFC?

goaliedad
Fri, 11 Jan 2008 13:59:28 +0000

I am confused by this statement - Assets in regular IRAs are not reported on FAFSA.



My apologies about my lack of clarity. Yes, assets in any IRA are not reported on FAFSA. It is the contribution to the ROTH that is not counted in the income section whereas the contribution to the conventional IRA is added back (after it has disappeared from your initial AGI number).

Neither contribution has an effect on the income part of the formula. The fact that you are in effect putting more money in the Roth (not getting the up-front refund of taxes) allows you to bury that tax money. For example if you put $4k into a conventional IRA, and have a 25% marginal tax bracket, you will get $1K back in your pocket through your tax refund which when put in the bank is an asset assesed by the FAFSA calculation. If you put that same $4k into the Roth IRA and have the same 25% marginal tax bracket, you do not get the $1K back and that $1k does not get assessed by the FAFSA calculation.

Don’t worry. You don’t lose that $1000. You get it back when you don’t pay taxes on that $4k (and whatever it earns) later in life.

You just get to shelter more assets from the Financial Aid grab with a Roth contribution than a conventional contribution.