I haven't seen this advertised too widely, so I thought I'd share an analysis I conducted using several college net price calculators:
At FAFSA schools, there is a big advantage to making contributions to a traditional 401k/403b. Under the new rules, payroll contributions reduce your AGI and are not added back in. (Note: contributions to Trad IRA do not get this treatment; it must come from payroll)
At (most?) CSS schools, contributions to traditional 401k/403b accounts count as income. Not only that, but the federal tax savings from trad contributions count as income. This is effectively an added tax to trad contributions.
Summary: all else equal, during the 'financial aid sensitive years' you are better off contributing to trad 401k for FAFSA Schools and Roth 401k for CSS schools. (caveat: CSS schools use different formulas, so make sure to verify on a school's net price calculator).
At FAFSA schools, there is a big advantage to making contributions to a traditional 401k/403b. Under the new rules, payroll contributions reduce your AGI and are not added back in. (Note: contributions to Trad IRA do not get this treatment; it must come from payroll)
At (most?) CSS schools, contributions to traditional 401k/403b accounts count as income. Not only that, but the federal tax savings from trad contributions count as income. This is effectively an added tax to trad contributions.
Summary: all else equal, during the 'financial aid sensitive years' you are better off contributing to trad 401k for FAFSA Schools and Roth 401k for CSS schools. (caveat: CSS schools use different formulas, so make sure to verify on a school's net price calculator).
Statistics: Posted by Admiral Fun — Sat Dec 14, 2024 10:11 am — Replies 0 — Views 38