Best strategies to shelter assets for FAFSA before college starts?

This is a smart approach! Moving assets from non-retirement to retirement accounts before filing FAFSA is an effective strategy since retirement accounts are not counted as assets on the FAFSA form. A few things to confirm: The FAFSA snapshot is taken based on the information at the time you file, so timing is critical. Make sure you complete these moves before submitting the FAFSA form. Also, be aware that while retirement accounts (401k, IRA) aren't counted as assets, distributions from retirement accounts during the base income year will count as income on future FAFSA forms. For your specific questions - yes, this approach makes sense for FAFSA purposes. By moving funds into retirement accounts, you're legitimately sheltering those assets from FAFSA consideration. And correct - when you eventually take distributions during retirement, those won't affect your current FAFSA calculations (though they will count as income if taken during college years). The 0% capital gains strategy is particularly smart if you're in the right income bracket. Just make sure you're accounting for any state taxes that might still apply to those gains.

I was in a similar situation last year with my daughter starting college and I used https://taxr.ai to analyze how shifting assets would impact our FAFSA EFC (now called SAI). The site helped me run different scenarios based on our tax forms to see how retirement contributions would affect our aid eligibility. The tax document analysis showed that by maxing out my 403b (similar to your 401k plan), we were able to reduce our income for FAFSA purposes AND shelter assets at the same time. The AI picked up on some other potential sheltering strategies I hadn't considered, like timing our mutual fund sales to minimize the impact. What you're proposing sounds similar to what worked for us. The capital gains strategy is especially smart - just upload your previous returns to see exactly how it would affect your specific situation.

I wanted to follow up about my experience with taxr.ai that I asked about earlier. I decided to try it and was honestly surprised how helpful it was for our FAFSA planning. I uploaded our 2022 return (the one that will count for my son's freshman year) and it showed exactly how increasing my 401k would impact both our taxes and FAFSA calculation. The tool flagged that we could save an additional $4,200 in our expected family contribution by making the retirement account transfers before the FAFSA filing date. It also warned me about a potential issue with our rental property income that would have hurt us on the FAFSA that I hadn't considered. Definitely worth checking out if you're trying to optimize for financial aid. I'm now working on implementing these changes before we submit the FAFSA in December.

If you're struggling to get information directly from financial aid offices (we waited WEEKS for responses), I found https://claimyr.com to be incredibly helpful. They got me through to actual financial aid advisors at several colleges when I needed to ask specific questions about how they treat different assets for aid calculations. Check out their demo at https://youtu.be/_kiP6q8DX5c to see how it works. Each school has slightly different financial aid formulas beyond just the federal FAFSA calculation, and getting this information directly saved us from making some mistakes in our planning. For example, some private schools count home equity in their institutional formula while others don't, which completely changed our strategy. The service bypassed those impossible phone queues and got me talking to someone who could answer my specific questions about retirement contributions and their impact on our expected family contribution.

I have to admit I was wrong about Claimyr. After my skeptical comment earlier, I decided to try it for myself since I was getting nowhere with my calls to Boston College's financial aid office. Within 20 minutes, I was speaking with an actual financial aid counselor who explained their institutional methodology for calculating aid. Turns out they DO consider home equity unlike some other schools, which completely changes our strategy. The counselor also confirmed that retirement accounts are excluded from their calculations, validating what others have said here. This saved me from making a huge mistake - I was about to pay down our mortgage thinking it would help with FAFSA, but for this particular school it would have actually hurt us. The time saved was well worth it after spending days trying to get through on my own.

One thing to watch out for - make sure you're contributing to a ROTH IRA rather than Traditional if your goal is to potentially use some of it for education expenses later. You can withdraw Roth IRA contributions (not earnings) penalty-free for education expenses, but Traditional IRA withdrawals for education still get hit with income tax (though the 10% penalty is waived). Also, don't overlook the asset protection allowance in the FAFSA formula. Depending on your age, a certain amount of your assets are already protected. For most parents of college-age students, it's not much nowadays (maybe $10K-$20K) but still worth accounting for in your calculations.

Be careful about selling mutual funds all at once! Even with the 0% long-term capital gains rate, a large sale could trigger other tax consequences like making more of your Social Security taxable, pushing you into a higher bracket for other income, or affecting ACA subsidies if you get insurance through the marketplace. Consider selling in batches across tax years to spread out the impact. Also, look into "asset swapping" where you sell losers in taxable accounts and repurchase similar (but not identical) funds in retirement accounts to maintain your investment allocation while harvesting tax losses.

This is exactly the kind of strategic thinking that can make a huge difference in your FAFSA results! Your approach of maxing out retirement contributions is spot-on - those accounts are completely excluded from the FAFSA asset calculation. One additional consideration: since you mentioned you have 5 paychecks left this year, make sure your employer's payroll system can handle the increased contribution amounts in time. Some companies need advance notice for significant 401k changes, especially near year-end when they're processing annual limits. Also, regarding your RV loan payoff strategy - that's smart because it reduces your cash assets (which count against you) while eliminating debt (which doesn't help you on FAFSA anyway since consumer debt isn't considered). Just make sure the timing works with your cash flow needs. The timing of your mutual fund sales is crucial too. You want those gains to show up in the tax year before your child's sophomore year FAFSA if possible, since FAFSA looks at the "prior-prior year" tax return. This way the income bump won't affect aid calculations until later in college when you've already benefited from the asset sheltering. One last thought - consider whether any of those mutual fund positions have losses you could harvest first. You can offset gains with losses while still accomplishing your goal of moving assets to retirement accounts.

Your strategy is really solid! I went through this same process two years ago with my oldest. One thing I'd add - don't forget about the American Opportunity Tax Credit (AOTC) when planning your income levels. You can claim up to $2,500 per student for the first four years of college, but it starts phasing out at $80K AGI for single filers ($160K for married filing jointly). Since you're looking at around $106K taxable income after retirement contributions, you should still qualify for the full credit. But it's worth keeping in mind for future years - sometimes it makes sense to manage your retirement withdrawals or Roth conversions to stay under the AOTC phase-out thresholds while your kids are in school. Also, regarding your question about distributions not counting as income for FAFSA - be careful here. While retirement account balances don't count as assets, any distributions you take (including both contributions and earnings) DO count as income on the FAFSA. So if you need to tap those accounts during college years, it will affect aid eligibility for the following year. The beauty of your current plan is that you're sheltering assets NOW while your child is applying, but you're not planning to take distributions until much later when FAFSA won't matter anymore.