Do retirement accounts count as assets for FAFSA?

I'm filling out the FAFSA soon, and I'm a bit confused about what counts as an asset. My parents have a couple of retirement accounts, and I want to ensure we report everything correctly.

Do retirement accounts like 401(k)s or IRAs actually count as assets when filling out the FAFSA? I want to avoid any mistakes that could affect my eligibility for financial aid. Appreciate any advice or experiences with this!

When it comes to the Free Application for Federal Student Aid (FAFSA), the money in your parents' retirement accounts, like the 401(k) and Individual Retirement Account (IRA), generally does not count as assets. This is a common point of confusion but the FAFSA instructions specify that retirement plans (including pre-tax contributions) such as 401(k) or 403(b) plans, pension funds, annuities, noneducation IRAs, and Keogh plans should not be reported as assets.

This rule helps to protect these accounts from hurting your financial aid eligibility. These funds are set aside for your parents' retirement and aren't intended to be used for educational expenses.

However, any recent contributions made to such accounts within the last year need to be reported on the FAFSA as untaxed income. Untaxed income is typically counted by financial aid formulas in the same way as taxable income. Examples might include money that was previously in a taxable account but that your parents moved into a retirement account in the past year.

When you fill out your FAFSA, make sure to take the time to understand each question and answer as accurately as possible. Accuracy is paramount to avoid any issues with your aid determination. Be especially careful about the distinction between assets and income. Don't hesitate to seek advice if you're unsure about anything – the information you provide is crucial for determining your financial aid eligibility.