Is inherited IRA an asset on the FAFSA?

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kamut666
Posts: 2
Joined: Sun Oct 29, 2017 1:42 pm

Is inherited IRA an asset on the FAFSA?

Post by kamut666 » Sun Oct 29, 2017 3:43 pm

My daughter is going to college in fall of 2018. We are filling out the FAFSA. We have $330K in an inherited IRA and $100k in a 529 college savings plan. That is the extent of our potential assets for the FAFSA because your home and other retirement accounts are not considered. FWIW, our AGI was $96k. Daughter has no assets of her own.

The 529 definitely counts as a parent asset. The info on the web about inherited IRA's and the FAFSA is kinda murky. In 2014, in a case not related to college financial aid, SCOTUS said that an inherited IRA is NOT a retirement account because you take unpenalized distributions when you're not retired, etc. Around that time, there were people saying, "well, that might not count for the FAFSA..."

Does anybody know if the inherited IRA is definitely an asset/investment for the FAFSA? I personally believe it IS an asset/investment. It's not my retirement, it was somebody else's retirement. I want to follow the rules. That being said, if I can call it a regular IRA/retirement account and not claim it as an asset/investment, I would obviously be happy about that.

I'm not sure how active the financial aid people at the colleges are about assessing this stuff. The distribution from the inherited IRA is income on our tax return. The FAFSA asks you "how much did you make from work?", but it doesn't ask "where exactly did your other income come from-lottery, finding cash on the ground?" It seems like a seasoned person seeing that we have income not from work would wonder where that money came from.

I'm not worried about paying for college per se, daughter is an excellent student, etc. I, like everybody, would like to pay as little as possible.

mhalley
Posts: 5138
Joined: Tue Nov 20, 2007 6:02 am

Re: Is inherited IRA an asset on the FAFSA?

Post by mhalley » Mon Oct 30, 2017 1:01 am

I am no expert, but imho an inherited Ira is still a qualified retirement plan and would not be reported, but the rmd would be reported as income. You might ask an expert here:
http://finaid.org/questions/askadvisor.phtml

teen persuasion
Posts: 361
Joined: Sun Oct 25, 2015 1:43 pm

Re: Is inherited IRA an asset on the FAFSA?

Post by teen persuasion » Mon Oct 30, 2017 7:43 am

The FAFSA asks 2 different questions about income. It asks the parents' AGI, and it asks how much each parent earned. The earned income question is used to calculate FICA paid (as that is subtracted from available income), and as a proxy for AGI if parents don't file a tax return. The AGI question is the one used for available income calculations.

As for the inherited IRA, reading the directions and additional notes on the "paper" FAFSA, only educational IRAs are excluded from the list of "retirement accounts". Inherited IRAs are not explicitly excluded.

Google "paper FAFSA" for a pdf of all the questions and the additional notes for filing (the online filing system is dynamic, and skips some questions as appropriate).

Google "EFC formulas 2018-2019" for the pdf containing the calculations and tables to walk thru your EFC calculation. Start on page 9. You will see exactly what is important to the FAFSA calculations, and how the inputs are used.

Spirit Rider
Posts: 6498
Joined: Fri Mar 02, 2007 2:39 pm

Re: Is inherited IRA an asset on the FAFSA?

Post by Spirit Rider » Mon Oct 30, 2017 10:21 am

The Supreme Court decision as they usually are was narrowly tailored. The Supreme Court held that inherited IRAs are not “retirement funds” within the meaning of federal bankruptcy law. This has not even been been extended to ERISA qualified plans, although it certainly could in the future.

I don't see how this would affect an Inherited IRA unless FAFSA promulgated such specific rules.

kamut666
Posts: 2
Joined: Sun Oct 29, 2017 1:42 pm

Re: Is inherited IRA an asset on the FAFSA?

Post by kamut666 » Mon Oct 30, 2017 1:28 pm

Okay, I called the # for the federal fafsa processor people 1-800-4-FED-AID and spoke to a rep, got an answer from a volunteer college financial guy at the link above, and reviewed paper FAFSA. Inherited IRA is NOT an investment/asset-at this moment in history anyway. This is huge for my family. Glad I took the time. If I could travel through the internet to kiss you guys, I would, seriously. I love this forum!!!

:beer :moneybag

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