Does my Child’s Retirement Account affect their Ability to obtain Financial Aid?

22 03 2012

Parents nation-wide are worried about their child’s eligibility for college financial aid.  This is especially true for those parents with children whom have a small retirement nest egg from earned income.

The facts – retirement accounts (such as Roth IRAs, 401ks) are not reported to the Financial Aid board (FAFSA) if distributions (a/k/a withdrawals) are not being made.  Once assets are withdrawn, they are considered “income” and will be factored into the FAFSA application.  Besides, it doesn’t make ‘financial sense’ to withdraw funds from retirement accounts prior to retirement age – you will end up paying early withdrawal penalties and taxes on money withdrawn.  The best advice is to withdraw funds during retirement age in intervals.

A great article about the topic is found here.




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