2015 IRA Contribution Can Hurt Child’s College Aid 2016-2017
The IRA contribution that you may make can actually lower your child’s college aid eligibility in 2016-2017. As explained in the original article, the IRA contributions you receive are “added back” to your adjusted gross income in the financial aid formulas that are used to determine a student’s need-based aid eligibility. The Forbes article uses the example of Ken and Barbie filing their taxes as a point of reference.
In the grand scheme of things, the IRA contributions you set aside for retirement could be seen as money that might actually be used to send your child to college. However, you do not have to report the value of IRAs (market value of accounts .) As a result, the IRA contributions added back to your income make it seem as though the parental income is bigger than what is actually is; and it is then seen as help that is available to pay for college than a parent who does not make an IRA contribution. This additional add-back rule applies to 401k, 403b, and other retirement plan contributions that are qualified such as: SEP, SIMPLE, Keogh, HSAs and others. Employer contributions are not added back in aid formulas though.
