Saving More in a 401(k) Can Now Boost Your College Financial Aid

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Faced with the gargantuan cost of higher education, Americans often have to choose between securing their children’s future or their own. A new rule change makes it slightly easier to do both.

Pretax contributions made to retirement accounts will no longer count as income in the formula that measures a family’s ability to pay for college, under changes to this year’s Free Application for Federal Student Aid, or Fafsa. The Education Department made the changes to simplify the form and ensure more aid goes to those who need it most. Some families could save between $5,000 and more than $10,000 on the cost of college each year, depending on their income.

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Under the federal formula, the maximum families are expected to contribute to the cost of college is capped at a range between 22% and 47% of their discretionary income. In the past, the Fafsa asked families how much they contributed to their work-sponsored retirement accounts. Retirement contributions were then factored back into total income, raising the amount families are expected to contribute.

The new Fafsa, which comes out in December, is shorter. Questions about untaxed payments to tax-deferred pension and retirement-savings plans have been removed. The changes are designed to simplify the process and help families in greatest need of assistance by drawing more information directly from tax documents.

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https://archive.ph/3tJF6

[PoindexterOglethorpe]

1. Glad to see this.

I always thought that colleges expected far too much from most families.