When Grandma Moves In, Does It Help or Hurt Financial Aid Eligibility?
By The Fastweb Team
August 23, 2017
Grandma is moving in with her Social Security check. Does this help or hurt my FAFSA results? Does her Social Security check count towards my parents’ income on the FAFSA? — Doreen Y.
The answer is complicated and depends on whether Grandma receives the Social Security benefits in her own name or whether they are received by your parents on her behalf. The answer also depends on whether Grandma may be counted in the household size.
Grandma may be included in household size on the FAFSA only if your parents provide more than half her support and will continue providing more than half her support during the award year. Support can include money, gifts, loans, food, clothing, housing (fair market rental value of the accommodations they are providing her), and medical and dental care.
If Grandma’s Social Security benefits are paid to her, they count as part of her own support and are not reported on the FAFSA.
If Grandma’s Social Security benefits are paid to your parents, they count as part of the support your parents provide to Grandma. If she is included in household size and the benefits are paid to your parents, the taxable portion of the benefits are included in your parents’ adjusted gross income. (The tax-free portion of Social Security benefits are no longer reported as untaxed income on the FAFSA.)
If Grandma’s Social Security benefits are paid to your parents, it will reduce your eligibility for need-based financial aid. If Grandma is counted in household size on the FAFSA, it will increase your eligibility for need-based financial aid.
Note that any support that Grandma provides to you, the student, is counted as untaxed income to you on the FAFSA and will reduce your eligibility for need-based financial aid. Any support that Grandma provides to your parents, however, is ignored on the FAFSA.
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.
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