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How do Retirement Savings Impact FAFSA?

December 06, 2018

What should and shouldn’t be reported on your FAFSA application can be confusing. Retirement savings plans, for example, are not to be included in your reporting, but your contributions and withdrawals from it are. Let’s learn more.

Assets versus retirement plans

The FAFSA requires that you report all income and asset net worth. Asset net worth, as defined by the FAFSA website, is the “current value of the assets minus what is owed on those assets.”

Assets include things like cash, savings/checking accounts, businesses, and real estate (other than the home in which you live). Assets do not include any “recognized” retirement plans. Plans recognized by the FAFSA (which means they are omitted from the calculation) are:

  • 401[k] plans

  • Pension funds

  • Annuities

  • Non-education IRAs

  • Keogh plans

You will note that this does not include any non-traditional ways you are saving for retirement, like in a savings account. If you are not keeping your retirement in one of the approved traditional plans, you will need to report that money as part of your assets on the FAFSA application.

What to and not to include

You won’t report the total value of your retirement plans, but you do have to report any voluntary contribution into or withdrawals from those plans over the year requested on the FAFSA. This is reported as untaxed income in section #94, and so could reduce your financial aid award significantly. The figures that must be entered on the application can be found on parents’ W-2 statements in boxes 12a through 12d, codes D, E, F, G, H and S, excluding code DD.

Do not include any non-elective contributions like an employer match, mandatory retirement system dues for teachers or employer contributions towards health benefits.

If you are contributing any post-tax earnings to a retirement fund, do not report on the FAFSA. Only report untaxed contributions to retirement plans.

IRS Data Retrieval Tool

If you’re eligible, consider using the IRS Data Retrieval Tool. This tool will import tax data from previous tax returns directly into the FAFSA application.

Be aware that for security measures, once information is imported into the application, the fields will be marked as complete, but will not show the values. You will not be able to see or alter the imported numbers.

If you have rolled over a retirement plan, do not use the tool. See more below.

Rollover IRA

Did you move funds from one qualified retirement plan to another this past year? Do not report this rollover IRA in the FAFSA application. This is not untaxed income.

If you have a rollover retirement account, DO NOT use the IRS Data Retrieval Tool, if possible. The information about your IRA will be reported incorrectly and will likely increase your Expected Family Contribution (EFC). In a helpful article by Virginia Tech, they explain that this happens because “the data retrieval tool does not identify and exclude tax return IRA and/or Pension distributions that have been rolled over into another account.  It will take the IRA/Pension distribution minus the taxable portion of the distribution and enter the result as untaxed IRA and/or Pension on your FAFSA.”

If you used the retrieval tool and also had a rollover in the relevant tax year, immediately contact your school’s financial aid office to inform them of the situation, formally request a change and provide IRS Form 1099 for evidence.