Should You Report Retirement Assets on Financial Aid Forms?

While the college financial aid process can be largely overwhelming to families, there are some things that families are generally aware of entering the process. One of the things parents often hear is that they don’t have to report retirement information on financial aid forms. There is some truth to this, but it’s not the complete story. I often receive questions on this subject, so the goal of this article is to clear up uncertainty surrounding what needs to be reported on financial aid forms and what doesn’t when it comes to retirement assets.

The first thing to understand when it comes to the reporting of any information as it pertains to financial aid is that reporting requirements are dependent on the type of application that is being completed. The two most notable financial aid forms are the FAFSA and the CSS Profile. Each form treats reporting of retirement assets a bit differently.

Preparing for the 2017-18 FAFSA >>

On the FAFSA, there is no question that specifically asks about the total a family has in retirement assets. Some confusion can result from the section termed ‘Investment.’ The FAFSA includes a guide that mentions what should and shouldn’t be included in this section. Retirement plans are something that is NOT included when you are reporting your total investments.

The CSS Profile, on the other hand, does include questions that ask about the type of retirement accounts families own as well as the total amount of assets housed in these accounts. Considering this is asked about, parents will naturally question whether or not this total saved in retirement assets is counted against them when financial eligibility is determined. As is the case with the FAFSA, retirement assets DO NOT count negatively against families when financial aid eligibility is determined.

But this isn’t the end of the story. While the assets housed in retirement accounts do no get factored into your financial aid eligibility, the amount that families contribute into a retirement plan in the financial aid base year (the tax year in question on the financial aid forms being completed) do get factored in.

Schools will take income that is contributed to retirement accounts and add it back into a family’s income for a given aid year. In this way, families are NOT sheltering income by contributing it to retirement plans during the base year of their financial aid application. This is not necessarily a reason not to save for your retirement, as the income will be counted either way. However, families should avoid contributing money into a retirement plan in the base financial aid year if their only goal is to shelter their income. In that case, families may be better off simply holding onto the income and using it for education expenses.

To conclude, schools will not count retirement assets against families when determining financial aid eligibility. However, funds contributed into retirement accounts during the base financial aid year will impact financial aid eligibility since it will be added back into the family’s income.

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