Hey everyone, I'm getting ready to navigate the FAFSA application and was wondering how retirement accounts factor in. Do they affect financial aid eligibility, or does FAFSA treat them differently from other assets? My family has some retirement savings, and I want to ensure it's not going to hurt my chances of getting financial aid. Would appreciate any insights or personal experiences!
Hi there! Good question - understanding how the FAFSA considers assets is crucial for estimating your eligibility for federal financial aid.
When it comes to parent-owned retirement accounts, these are treated favorably in the calculations. Retirement account balances, such as in a 401k or an IRA, are not counted as assets on the FAFSA. This means your family’s retirement savings will not be affecting your Expected Family Contribution (EFC).
However, it's important to note that if your parents take distributions from their retirement accounts during the base tax year (the tax year prior to the academic year for which you're applying for aid), this counts as untaxed income on the FAFSA and can affect your Student Aid Index (SAI).
So it's wise for your parents to avoid making withdrawals from their retirement accounts during the base year, if possible. If they do have to take money out, it's recommended they do it after you've filed the FAFSA if they can.
Just remember to always submit the FAFSA as soon as possible after October 1st each year to maximize your aid eligibility. Keep in mind that some aid is distributed on a first-come, first-served basis. The sooner you get your application in, the better chance you have of receiving the maximum amount of aid you qualify for.
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