Question about parental assets and inherited IRA/401k

Applying to College
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Quick question: When running a net price calculator, would an inherited IRA be considered a taxable investment account (parent’s assets/taxable investment) or considered retirement savings? This seems to make significant difference in results.

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Call the school. Now that inherited IRA’s are on an accelerated RMD schedule, for some people the balance once they retire will be zero. But depending on when you inherited it, you may be grandfathered in to the old RMD paydown.

If the difference is significant, call the school. I think even among savvy CPA’s there are different approaches now that the rules have changed…

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When running NPCs, answer the questions it asks.

Whether inherited or not, IRAs aren’t reported on FAFSA, so it will be a non-impact for FAFSA only schools. However, any IRA withdrawals are reported as income, so that will impact FAFSA (and CSS Profile) in the year using the appropriate tax returns when filing these forms.

The balance of all IRAs, including inherited IRAs, can be reportable at CSS Profile schools. Different schools may use that info differently. For CSS schools you should be able to model the impact on estimated COA by running it with and without the IRA balance (if it asks for IRA balances.)

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Agree with @Mwfan1921 . I have an inherited IRA. The balance IN the account was considered a retirement asset. The amount I received each year from that account was unearned income and was reported on the financial aid and tax forms. I get a 1099R for that every year (I received mine before the 10 year spend down began).

I don’t recall having to list the balances in my retirement accounts on the Profile…but my kids graduated college in 2003 and 2010.

Is it possible that this question isn’t asked by all colleges?

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FAFSA only schools likely won’t ask as part of their NPC. IME some CSS Profile schools ask (it’s part of the general CSS battery of questions.) Whether or not they assess those balances in their model, and by how much, varies.

If a school asks for IRA balances on the NPC, that includes inherited IRAs. Easy enough to model the impact on estimated COA by running the NPC with and without that balance.

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