03 Dec Does an inherited IRA count on the FAFSA?

Q. My husband has an inherited IRA from his mom. We are in the middle of filling out FAFSA for our two sons. Do we count this? Also, we have a variable annuity – non-retirement money – that we can’t touch until July 2021 without a penalty. Does this count in assets?
— Mom

A. The Free Application for Federal Student Aid (FAFSA) requires you to answer questions regarding your income and financial assets to determine your eligibility for student aid.

The combination of income and assets, as well as other questions asked on the FAFSA, will generate an Expected Family Contribution (EFC) number, said Jim McCarthy, a certified financial planner with Directional Wealth Management in Rockaway.

He said the EFC indicates how much your family can contribute towards college expenses. The higher EFC, usually, the less student aid awarded.

Your husband’s inherited IRA would be a non-reportable asset for FAFSA purposes, McCarthy said.

The list also includes any qualified retirement plans such as 401(k) plans, 403(b) plans, pensions, traditional IRAs, Roth IRAs, Keough, SEP, SIMPLE plans and retirement annuities.

“Please keep in mind that any income – withdrawals – taken from your husband’s inherited IRA would have to be reported as income for that year on the FAFSA,” McCarthy said. “As your husband is a non-spouse beneficiary on his mom’s IRA, he should be taking Required Minimum Distributions (RMDs) from this inherited IRA annually.”

As for your variable annuity, McCarthy said it’s a non-reportable asset for the FAFSA. But, non-qualified annuities are counted on assets on the CSS Profile. This is another aid form that some 300 colleges use for their own “institutional” aid determination, McCarthy said.

“You should check whether the school(s) your sons are applying to/attending require the CSS Profile in addition to the FAFSA,” he said. “The non-qualified variable annuity will not impact your son’s federal aid calculation but will impact any direct aid from the school if the CSS Profile is required.”

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This story was originally published on Dec. 3, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.