The cost of college attendance has been rising rapidly every year for decades. At some four-year schools, tuition is over $65,000 per year. However, with this high cost of attendance, some schools include large amounts of merit- and financial aid. The FAFSA (Free Application for Federal Student Aid) is the universal application for financial aid. All colleges require the FAFSA to dispense aid if it comes from the federal government, while many also require the CSS Profile, a third-party application.
While income is the essential part of determining college financial aid for your child, your assets, including certain retirement contributions. By structuring your assets favorably, you or your child can receive more financial aid for college from the federal government and the educational institution.
Do Retirement Accounts Affect Financial Aid Eligibility?
When calculating EFC (Estimated Financial Cost) on the FAFSA, the value of 401(k) and Roth and traditional IRA accounts are not counted. However, even though you can make a penalty-free withdrawal from a Roth IRA to pay for college, it counts as untaxed income that figures into your EFC. Remember that as much 50% of your income can be considered available funds to pay for college. Keep your EFC low to get more financial aid eligibility.
What About My Home and Real Estate Holdings?
On the FAFSA, home equity on your first home does not count against you for income. However, on investment real estate, like a second home or beach home, this will count as income for the FAFSA. When you’re calculating net worth, you can only subtract debts secured by the asset, so consult an expert if necessary.
What if I Own a Family Business?
Your family business doesn’t count on the FAFSA if you own and control more than 50% of it and there are fewer than 100 full-time employees. If your business is truly a family-owned business, it likely won’t count against you as an asset for determining financial aid on the FAFSA.
How About My Insurance Policies and Annuities?
Any cash value of whole life insurance policies or annuities won’t be reported as assets for the FAFSA. Non-qualified annuities, however, are counted as assets on the CSS Profile, if you do need to fill that out for aid for your educational institution.
My Family Lives and Works on a Farm
If your family’s primary residence is a farm, and that’s also their form of income, the FAFSA doesn’t consider it an asset. Once again, the CSS Profile will ask about it, but the school will treat it differently depending on how they calculate need.
Trust Americans for Life in Calculating Your Assets for College
For many American families, all these assets can be confusing. An expert adviser from Americans for Life can walk you through which retirement assets and investments will count for the FAFSA and help you restructure anything as necessary to maximize financial aid. Contact Americans for Life today to get started on your financial aid planning.