Inherited IRA and FinAid

My child got into an Ivy but the school is expecting her to liquidate her relatively small inherited IRA and all of her savings to pay for college. None of her other college choices required that she pay from her own inherited funds. Has anyone else had this issue?

I thought IRA’s and similar retirement accounts didn’t have to be disclosed? Disclaimer - I have a 2023 so we haven’t actually filled things out yet.

I don’t believe inherited funds are off limits as far being taken into account for college financial aid.

Is the school telling her that she can only attend or she can only receive institutional aid if she liquidates her inherited IRA and uses the money for college expenses? I doubt it. So, in reality, she’s not being required to pay from her own inherited funds. If you provide a breakdown of the financial aid package offered and give some basics on your family’s financial situation, those of us who post here and have been through this with our own kids can give you some perspective. But we need the context.

The balances of qualified retirement accounts, like IRAs, need to be reported on the Profile financial aid form, which is used by many of the most generous schools (like the Ivys).


Also, she likely doesn’t have to liquidate those funds – you (or others) are allowed to pay the college the equivalent amount. But if they are taking those into account when determining her financial aid package, then they will likely continue to do so each year that you apply for financial aid. Also, they may be expecting her to contribute money from anticipated working during the school year and summer – most colleges include that as part of a financial aid assessment.

That being said, usually money in a student’s savings account is assesed quite heavily, but money in a student-held IRA is usually protected. If you haven’t already done so, I recommend filling out the college’s Net Price Caluclator (it’s on their webpage) to see if their estimated financial aid package is similar to what your daughter was offered. If not, you can ask for an explanation, and perhaps appeal. Caveat: if the parents are divorced, or own a small business or real estate beyond the primary home, then the Net Price Calculator may not be accurate unless it specifically asks questions about those elements.

I thought that the balances are requested so that they can be protected – and to prevent families from inadvertently intermingling their protected retirement assets with their non-protected non-retirement assests. As well as, of course, to give a broader picture of a family’s financial strength.

College financial aid formulas expect the students non-retirement assets to be fully used to pay for college over the 4 years. No surprise there. IRA assets are off-limits, but inherited IRAs can foul the calculation. Assuming your daughter inherited a traditional IRA from someone who was not her spouse after 2020, she has to drain that account within 10 years. And any withdrawals are treated as her taxable income that year. This will impact financial aid calculations.


Ouch! Income is hit hard for financial aid formulas. Thanks for the info.

Any idea why the OP’s non-Ivies didn’t include this in their calculations? Is this just a CSS-Profile issue and the FAFSA ignores income from inherited IRAs? That doesn’t seem likely?

Inherited IRAs are not traditional IRAs funded by the student via working a job. Technically the inherited money can be withdrawn at any time without penalty so it’s more like a savings account than an IRA.


Thanks. That makes sense now. I hadn’t appreciated that difference in the OP’s first post.


The FAFSA does not look at the inherited IRA. It’s just the CSS profile. The amount that they’re asking her to contribute is the exact amount of the total IRA and her savings account divided over 4 years. So she will be left with nothing at the end of the 4 years which does not seem to her benefit. She inherited the IRA in 2017 so before the 2020 changes.

Why is that surprising though? Isn’t paying for college one of the things people think about when they plan on passing money to their younger family members?


Yeah, that’s how colleges assess student assets. CSS profile assesses them at 25 percent, so used up after four years. Even the FAFSA colleges assess at 20 percent a year, so not sure why her FAFSA-only colleges didn’t.

But if she can put that money into her 529 then it’s assessed at the parent rate of 5.64 percent. @BelknapPoint can you confirm?

Edited to add that upon further reflection, moving the money into a 529 would require liquidating the IRA and then apparently that money is treated as income, which is assessed even more heavily, so I take back that idea.

Is this going to mean that she can’t attend this school?

Maybe FAFSA doesn’t consider the amount of an inheritance IRA just withdrawals from it since a withdrawal is treated as income and FAFSA focuses primarily on income rather than assets and it’s easier to treat all IRAs the same?

Most likely she will not attend. None of her other colleges used the inherited IRA to make the determination, even though many used the CSS profile. We didn’t see this one coming! Seems like the institutions with the biggest endowments also want the most money from the students! Surprise.

It’s a benefit if using the IRA funds allows her to gain an education at the college she prefers.

However, it sounds like she is fortunate to have other college options that don’t require use of the inheritance IRA.


Just asking – you said in your first post that the inherited IRA was relatively small. Does she prefer this school over the others? If so, is it worth the loss of the IRA funds to go there?

And…hasn’t the dedadline to accept already passed? Or is she a transfer student? Or did she come off the waitlist?