Our oldest son has been earning some money pet-sitting and delivering newsletters and we wanted to encourage him to start building his retirement savings by matching what he contributes. This raised a question as to whether having a retirement account in his name would affect his future eligibility for financial aid. I have to admit I did not readily know the answer, so I wanted to share what I found.
Some student and parent investments are reported on the Free Application for Federal Student Aid (FAFSA), while others are not:
- College savings, such as 529 college savings plans or prepaid tuition plans are reported as assets on the FAFSA.
- Money in bank and brokerage accounts, CDs, cash, stocks, bonds, and other securities are reported as assets on the FAFSA.
- Investments in real estate, other than a family home or farm where a family resides, businesses, and rental properties are reported as assets on the FAFSA.
- Qualified retirement plans, such as 401K, ROTH 401K, IRA, ROTH IRA, pension, SIMPLE plan are not reported as assets on the FAFSA.
So, as long as they don’t make any withdrawals, money in a student’s or parents’ qualified retirement accounts won’t affect the student’s aid eligibility.