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Youngest child is starting college; parent is unemployed. Will the FAFSA consider the following, or will they be ignored for financial aid calculations?

  1. Retirement benefits (social security)

  2. Dividends from a Roth IRA

  3. Distributions from a Roth IRA

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  • Is the parent unemployed or retired? (Those terms are not the same and should not be used interchangeably.)
    – RonJohn
    Dec 26, 2019 at 19:36
  • @RonJohn - One was laid off but was "at will" and wasn't eligible for unemp. benefits, but is at an age where it would be possible to collect social security benefits. The other was told the funding had dried up, took "early retirement" from the university, received unemp. benefits, but is not old enough yet for social security benefits. So, it's hard to give you a simple answer to your question.
    – aparente001
    Dec 27, 2019 at 8:21
  • So, two parents: one retired and one unemployed. Or am I still misunderstanding you?
    – RonJohn
    Dec 27, 2019 at 8:34
  • Let's try this again. Parent A was laid off but was "at will" and wasn't eligible for unemp. benefits, but is at an age where it would be possible to collect social security benefits. Parent B's employment ended too, having been told the funding had dried up. B was advised to take "early retirement" from the university, AND is receiving unemp. benefits. But B is not old enough yet for social security benefits. So, each one is a funny combination of categories. Sorry!
    – aparente001
    Dec 27, 2019 at 9:00
  • There's no confusion. Both are unemployed. A can collect SS, but B can't. That's not funny at all; it's quite common.
    – RonJohn
    Dec 27, 2019 at 9:05

1 Answer 1

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Retirement benefits (social security)

Only taxable Social Security benefits are used in the parental income calculation. The untaxed portion is ignored. The amount that is taxable depends on if you are an individual or married, and what your total income is.

Dividends from a Roth IRA

Assuming that you mean investment dividends that are not withdrawn from the IRA (i.e., kept in the account). The amount is not included as a parental asset for the purposes of the FAFSA. If you withdraw the dividends then the amount would be included in the next point:

Distributions from a Roth IRA

The balance of an IRA (Roth or Traditional) is not included as a parental asset. However, if you take a withdrawal from the IRA then it is counted as income, and up to 50% of that amount could reduce aid awarded with next year's FAFSA. In other words, if you withdrawal $10,000 from your IRA in 2020, $5,000 would be used by the FAFSA to limit the amount of financial aid when you fill it out for 2021. This occurs whether you actually use the money to pay for college or not.

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  • Complicated! Thank you. I was interested in all three, whether the Roth IRA as it exists, in its current monetary value if sold off, counts as a parental asset (I take it the answer is no), whether withdrawn Roth IRA dividends count as parental income (I take it that has a complicated answer), and whether a distribution (withdrawal) would count as parental income (I take it the answer is, half of it is).
    – aparente001
    Dec 26, 2019 at 16:10
  • @aparente001 You're welcome! Correct, money in an IRA is ignored on the FAFSA until you withdraw it, and withdrawals are counted at 50%.
    – Nosjack
    Dec 26, 2019 at 16:13
  • What a nice, simple way of looking at it. I would add that to the answer, actually. // If the student works over the summer, would a big chunk of those earnings serve to reduce the amount of the financial aid for the following year? (I'll ask a separate question about that if you want me to.)
    – aparente001
    Dec 26, 2019 at 16:15
  • @aparente001 50% of a student's income over the $6,570 "income protection allowance" could reduce the amount of financial aid. If you want a more detailed answer for parent/student income impacts you could always ask a question about that specifically :)
    – Nosjack
    Dec 26, 2019 at 19:25
  • Thanks. One more little one for now if you don't mind -- tomorrow I can write a proper question -- if the student's paycheck gets automatically deposited to the parents' bank account, because the student has OCD and misspends his money otherwise, does that make any difference? In other words, does one turn in pay stubs along with the FAFSA?
    – aparente001
    Dec 26, 2019 at 21:41

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