FrogMom5 Posted July 6, 2011 Share Posted July 6, 2011 Does anyone know how colleges view Roth IRAs that are in the students name? My son has earned income for the first time this summer and we're thinking of setting up a Roth IRA for him. We are wondering how this will affect his qualifications for financial aid. He's a rising 10th grader now. We're only talking about $2,000-$4,000 by the time he applies for the aid. Thanks for your help. Denise Quote Link to comment Share on other sites More sharing options...
Jane in NC Posted July 6, 2011 Share Posted July 6, 2011 (edited) Not a financial advisor, but it is my understanding that while retirement accounts for parents and students are not considered by FAFSA, the Profile does ask for this account information. Further, some schools that use FAFSA (not the Profile) might ask for extra data--which could include real property, retirement accounts, etc. The only short term implication that I can think of is this: The college financial aid formula assumes that parents and students will pony up a certain percentage of income. There is an assumption that parents have saved (whether they have or not). Similarly, a percentage of the student's income is tapped. If the student has tied up his money in an IRA, the parent or someone will have to fill in the anticipated gap. Although we are not talking about a lot of money since the student's earnings are not high. Just a note for those who are unfamiliar: the Profile is used by certain private colleges, usually the most competitive ones. Some schools that use FAFSA will require the Profile for Early Admission because it is available earlier than FAFSA. Edited July 6, 2011 by Jane in NC Additional info. Quote Link to comment Share on other sites More sharing options...
Moira in MA Posted July 6, 2011 Share Posted July 6, 2011 Like Jane, I'm not a financial advisor. However IRAs are designed to shield income from taxes. It seems to me that your son will not be earning enough to owe any tax on his income nor sufficient earnings on the savings to be taxable. So why would he lock up the money in a retirement account that has penalties for withdrawal? jmho ~Moira Quote Link to comment Share on other sites More sharing options...
OLG Posted July 6, 2011 Share Posted July 6, 2011 Simple financial aid fact, colleges take a higher percentage (sometimes MUCH higher depending upon parent's financial situation) than from the parents. Tying this up as PP said, in a vehicle that dictates a penalty for early withdrawal, doesn't make sense. Fin Aid is a real thorn. Quote Link to comment Share on other sites More sharing options...
FrogMom5 Posted July 6, 2011 Author Share Posted July 6, 2011 Hmm. The IRA I want to set up is a Roth so, it is after taxes. No, he doesn't need a tax shield. I want to set this up for him to use in retirement, not for other things. Since time is a big factor in the growth of $$, it's good to start early. However, I get what you all are saying. It will most likely count against him in the financial aid calculations. Thanks for your help w/this one. I've heard both topics discussed for teens but never together in this particular situation. Denise Quote Link to comment Share on other sites More sharing options...
Pegasus Posted July 7, 2011 Share Posted July 7, 2011 There seems to be some confusion about the Roth IRA. The money is not tied up. The owner can withdraw the contributions (not the earnings) at any time without penalty. The penalties hit if the earnings are withdrawn early. Pegasus *not an authorized financial advisor* Quote Link to comment Share on other sites More sharing options...
Jane in NC Posted July 7, 2011 Share Posted July 7, 2011 There seems to be some confusion about the Roth IRA. The money is not tied up. The owner can withdraw the contributions (not the earnings) at any time without penalty. The penalties hit if the earnings are withdrawn early. Pegasus *not an authorized financial advisor* Good point. It is just that a teen will not have much remaining in earnings if he withdraws his deposits. I would hate to see a penalty if a minimum amount is not maintained. Quote Link to comment Share on other sites More sharing options...
FrogMom5 Posted July 8, 2011 Author Share Posted July 8, 2011 Pegasus - yes, you are right about how the Roth works. The flexibility is one of the reasons I want to set this up for him. Still, I teach my kids that retirement accounts are not to be touched unless there is no other way to deal with an emergency. I have no intention of using the Roth to pay for school, even graduate school. Call me paranoid but, I think it's even more important for this generation to start retirement plans as early as possible. We are thinking that we will go ahead with our plans. We can come up with the difference between what he may forfeit in financial aid. Dh doesn't think he'll get any aid anyway. We'll see. Everyone - thanks again for weighing in on this scenario. Denise Quote Link to comment Share on other sites More sharing options...
Sandra in FL Posted August 6, 2011 Share Posted August 6, 2011 Roth IRAs are not included in calculation for FA. I believe that some selective schools (like Harvard) do include un-taxed (taxes have not been paid yet - like IRAs, 401Ks) retirement money in calculation for FA. FrogMom5 - I applaud you for your forward thinking. Wish I had enough money to fund Roth IRAs for dc. I wasn't aware of this until this year but there are also Roth 401ks - not as flexible as Roth IRAs (can't be moved). Quote Link to comment Share on other sites More sharing options...
nynyny Posted January 19, 2012 Share Posted January 19, 2012 A volunteer job at the hospital has turned into a paid pharm tech position for my 16 yr old. He will not qualify for financial aid at the state school he plans to eventually attend. Is there any type of Roth IRA account where you can add to it each payday--similar to investing in savings bonds monthly out of your paycheck? Thanks. Quote Link to comment Share on other sites More sharing options...
choirfarm Posted January 19, 2012 Share Posted January 19, 2012 A volunteer job at the hospital has turned into a paid pharm tech position for my 16 yr old.He will not qualify for financial aid at the state school he plans to eventually attend. Is there any type of Roth IRA account where you can add to it each payday--similar to investing in savings bonds monthly out of your paycheck? Thanks. Absolutely!!! He just needs to open up a ROTH IRA account. He'll have to find one he can open for 250.. I'm thinking that would be the least he would have to have to open one, but do your research. Once the account is open, just fill out the automatic deposit forms and you are set to go. Also, realize that ROTH investments vary. YOU CAN LOSE MONEY. You need to be careful what kind of investment you choose and know the risks. You can be very safe and get little return or very risky with a higher return but higher possiblity of loss. Quote Link to comment Share on other sites More sharing options...
nynyny Posted January 20, 2012 Share Posted January 20, 2012 Thanks choirfarm! I had contacted the banks in our town without success, but I guess I need to look elsewhere. It's difficult to find anyone who is willing to deal with small deposits. Quote Link to comment Share on other sites More sharing options...
choirfarm Posted January 20, 2012 Share Posted January 20, 2012 Well.. it looks like online with some of the major companies like Vanguard or Fidelity that you may need at least 1,000 to invest... He might need to just automatically put it into a savings account until he has the minimum to open the account... then he could automatically deposit... Quote Link to comment Share on other sites More sharing options...
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