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Does it really matter to the government OR the school what our adjusted gross income is? I want to make an IRA contribution this year, but our accountant advised us not to. He said that the AGI is just used to determine how much taxes you pay, NOT how much you make. In that sense, he said that the govt/college would only look at your original NET INCOME.

Should I spend the money to contribute to the IRA or save it for my daughter's college? Wouldn't the govt/college financial aid people wonder "WHAT? You have money to buy several thousand in IRA, but not for college?"

Help, please!

By Calmom (Calmom) on Monday, January 13, 2003 - 03:58 am: Edit

It is fine to contribute to your IRA, but what the accountant was trying to explain is simply that the amount you deduct will not be subtracted out for FAFSA purposes. The main disadvantage of contributing to an IRA is that you are tying up assets that could otherwise be used for college - but whether or not that is a good idea really depends on what other available assets you have.

In other words, if putting $5000 into an IRA means you will have to borrow $5000 next September, you are better off without the IRA contribution.

By BIG question on Tuesday, January 14, 2003 - 05:03 am: Edit

Thanks!

By Glenn on Tuesday, January 14, 2003 - 11:24 am: Edit

You can always get loans , especially ones that are to be payed after the studens graduate. I am a strong proponent of funding your IRA, pension plans etc. You can not go backwards and fund them later.

By mmom on Thursday, January 16, 2003 - 12:46 am: Edit

I think that contributions to 401Ks lowers your adjusted gross income. I think that is the number that is the most important in determining Fin. Aid.
Try it on the College Board EFC calculator.

What do schools do about people that have company paid retirement programs? That doesn't show up on your financial statement?

I have another gripe. What about, for example people that have full medical benefits?
Our family has a crappy company medical/dental plan that we have to "contribute" about $1500/yr to as well as copays etc.

By Anne on Friday, January 17, 2003 - 06:03 pm: Edit

to mmom: Each year's contribution to your 401K is considered part of your income. The amount is entered on the Fafsa worksheet (as untaxed income). However the accumulated savings in your 401K and other retirement plans are not considered assets.
Making contributions to an IRA or 401K will definitely lower your assets although they won't help lower your income.