When Grandma Moves In, Does It Help or Hurt Financial Aid Eligibility?
April 26, 2010
Do my parents include what they have for retirement in their savings amount on the FAFSA? — Stacey G.
Money in a qualified retirement plan account, such as a 401(k), 403(b), Keogh, SEP, SIMPLE, IRA, Roth IRA or pension plan, is not reported as an asset on the FAFSA, although the employee’s voluntary current year contributions to these plans will be reported as untaxed income.
Money saved in taxable accounts, such as a savings account or brokerage account, is reported as an asset on the FAFSA. Likewise, money stuffed under your mattress is reported as an asset on the FAFSA. You may intend to use the money for retirement, but if the money isn’t in a qualified retirement plan account, it can be used for any purpose and is not restricted to retirement. This is true even if you are already retired.
The federal need analysis formula includes an asset protection allowance to protect a portion of money saved in taxable accounts. The allowance is based on the age of the older parent and is roughly the present cost of an annuity which, when combined with Social Security benefits, would yield a moderate standard of living at retirement. For most families the asset protection allowance is about $50,000. For parents who are closer to retirement it can be as much as $30,000 higher. So the need analysis formula does shelter a small amount of money saved for retirement in taxable accounts, but you still have to report this money on the FAFSA.