Inheritance money impact on FAFSA
Hello there. My daughter is going to college this fall. I am worried about FAFSA. I received inheritance from my dad! How that affect FaFSa? If I transfer inheritance money to IRA or 401k, will it still affect FAFSA. How can I reduce money for fafsa?
Terry Says
Money in a qualified retirement account like an IRA or 40l(k) does not count as a family asset in the FAFSA formula. But the inheritance (whether you put it in a CD or a mutual fund) will count as a family asset, potentially reducing financial aid. In fact, all family assets and income from your tax return are required to be reported in filing FAFSA for every year you apply for financial aid.
If your daughter is a senior now, heading to college, you should have already filed the FAFSA last October 1st — based on your 2019 income tax return. Assuming you received the inheritance after the filing, it won’t impact aid already planned for this coming fall. But as an “asset”, it will impact aid for her sophomore year.
So in the meantime, if you qualify based on income, you can put some of the money $6,000 (or $7000 if 50 or older) into a Roth IRA. Do it now for 2020, and again early next year for 2021. And during the coming year you could add more money to your 40l(k) from your salary, using some of the inheritance to cover the amount withheld for your 40l(k) contribution.
I don’t know if that will make a big difference, but if you’re filing FAFSA every year for her college funding, it will eventually make a difference in your assets to have more sheltered in a retirement account.
