Liquidate brokerage into Roth IRA for FAFSA going into medical school?

[Drew28982898]

So I currently have about 16k saved up from working but income will be ending soon as I begin medical school. My 2020 (Covid) income was very minimal (<$1000 bc of covid) and my parents income is also very low, is it worth maxing my 2021 + 2022 IRA contributions (12k) to bring my total assets down to 4k for FAFSA and potential scholarships? My only worry is this money could be used for expenses and housing during med school, and not sure how beneficial this might be.

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[UsernameChecksOut]

You can withdraw contributions (not earnings) from a Roth at any time without penalty. Not sure if that helps with your decision. Good luck!

What Is the Roth IRA 5-Year Rule? Withdrawals, Conversions, and Beneficiaries

The Roth IRA five-year rule applies in three situations and dictates whether withdrawals get dinged with penalties.

www.investopedia.com

 

[voxveritatisetlucis]

The 16k almost surely won’t be enough to reduce scholarships/institutional aid. I’d probably recommend keeping it for housing and expenses depending on the loan rate that you get.

 

[Dogruffle01]

Most schools use the CSS profile as well. Tax deferred retirement accounts are counted on this. Unfortunately, $16,000 does hurt a bit. I have around 10k saved up from working in college and I started with an EFC of 0 my freshman year and now have an EFC of 7000. I made 38k last year which was far more than my parents income. I know it dosen't seem like a lot, but when you were paying nothing before the money stings a bit.

 

[Drew28982898]

Most schools use the CSS profile as well. Tax deferred retirement accounts are counted on this. Unfortunately, $16,000 does hurt a bit. I have around 10k saved up from working in college and I started with an EFC of 0 my freshman year and now have an EFC of 7000. I made 38k last year which was far more than my parents income. I know it dosen't seem like a lot, but when you were paying nothing before the money stings a bit.

What is CSS profile? Fafsa website was saying that tax-deferred accounts aren't counted. And yeah I definitely feel that, make way more than my parents but that income ends soon but will still get counted which sucks

 

[UsernameChecksOut]

A Roth is not a tax-deferred account. You already paid taxes on the contributions and it counts as a retirement account, which is sheltered from the financial aid formulas on both CSS and FAFSA.

Edit: this is how it works for undergrad financial aid. If it’s different for need-based aid in medical school, that’s news to me.

 

[Drew28982898]

A Roth is not a tax-deferred account. You already paid taxes on the contributions and it counts as a retirement account, which is sheltered from the financial aid formulas on both CSS and FAFSA.

Edit: this is how it works for undergrad financial aid. If it’s different for need-based aid in medical school, that’s news to me.

That's what I thought, thank you for the clarification!

 

[Dogruffle01]

A Roth is not a tax-deferred account. You already paid taxes on the contributions and it counts as a retirement account, which is sheltered from the financial aid formulas on both CSS and FAFSA.

Edit: this is how it works for undergrad financial aid. If it’s different for need-based aid in medical school, that’s news to me.

My bad, innocent mistake. Either way they ask for post-tax retirement accounts as well.

 

[UsernameChecksOut]

Yes, they do ask about retirement accounts (not sure why) but it’s not used against you. Some say it’s so you’re not confusing your assets when you report them.

Again, I’m speaking re: undergrad aid and am making the assumption it’s the same in grad/med school but idk know with certainty so if anyone does, please feel free to correct me.

 

[TelemarketingEnigma]

I don't know if it's true for all med schools, but many of the ones I'm familiar with allow you to borrow up to the full COA regardless of how much you have in savings, quite different than undergrad. It could hurt you if you're trying for need-based aid from the school, but you shouldn't have an issue getting the loans you need. And it can be good to have some accessible funds for all the unexpected expenses of moving to a new place and/or so you can take out a bit less in loans

 

[voxveritatisetlucis]

You say brokerage. Is this money in equities? The reason I’m asking, is because it looks like stocks will be down at least 4-5% tomorrow. I always think it’s a bad idea to sell into weakness. Then again, if you will definitely need the money, may be better to cut your losses and write off the maximum loss on your taxes next year.

 

[NITRAS]

There isn’t much in terms of scholarships for medical students.

It sounds like this is sitting in a savings account. Honestly, I’d keep it there. You really don’t sound like you can afford to invest in retirement vehicles. Also, you can only put into an IRA if you have an earned income. With a thousand in earned income in 2021, you can put a thousand in an IRA. The 6 thousand is maximum, but you can’t put in in without earning at least 6 thousand in reported income.

Btw, have you just had this money for years? Was it a gift? Was it money that you earned under the table? Be Careful about the last one (and I’d report it if it was).

 

[allseasons]

You say brokerage. Is this money in equities? The reason I’m asking, is because it looks like stocks will be down at least 4-5% tomorrow. I always think it’s a bad idea to sell into weakness. Then again, if you will definitely need the money, may be better to cut your losses and write off the maximum loss on your taxes next year.

I thought so too. Was very surprised to see the market end slightly higher. I figured my call options were screwed but I ended up making a slight profit.