Retirement investing while still in school

[Tooth]

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I understand that there are significant benefits to investing for retirement while we're still in our early 20's but I'm 27 and still in school. I'll be 29 by the time I finish dental school. If I start a Roth IRA, or 401(k) or whatever, do I have to report it on my FAFSA and then get screwed by not qualifying for loans?

 

[Lesley]

I understand that there are significant benefits to investing for retirement while we're still in our early 20's but I'm 27 and still in school. I'll be 29 by the time I finish dental school. If I start a Roth IRA, or 401(k) or whatever, do I have to report it on my FAFSA and then get screwed by not qualifying for loans?

Please check the information below with your accountant. I think is correct, but I am not a professional, and it could be off.

From my understanding, you can only start a Roth IRA or a 401K if you have earned income. You can contribute up to $4,000 annually to a Roth IRA provided you have earned at least this amount. If you have any earned income, it will show up on your taxes as will any IRA contributions you make during the same year.

I don't think you are double penalized. Should you earn $2,000 and put it into a Roth IRA, your school can consider that you had $2,000 to work with, but can not say you have $4,000 available for schooling, because you put the $2,000 in a retirement account.

Regardless, any income you earn while in dental school, unless it is part of a work study plan offered in your student aid packet, will effect your ability to get aid. Money earned while working under work study does not effect future financial aid. This aid is usually need based, and it is factored differently.

However, I think all students, undergrad and graduate, are expected to contribute a certain amount of money toward their education with earned income. Many students work in the summer, so they will show some earned income. Should you earn any amount over the minimum expected student contribution, they can consider this money available for your educational needs, regardless of whether you put it into a Roth IRA or not. Therefore, any additional earned income can effect the amount financial aid awarded.

Once it is in your Roth IRA, the financial aid office can not consider it in future years as touchable for your education needs. It is protected and should not effect your future ability for financial aid.

The FASFA primary gets it's expected family/student contribution from prior year earnings. What you have put in your retirement account during previous years is irrelevent.

Please double check with your accountant, this is only rough information. Lesley

 

[ncalcate]

Please check the information below with your accountant. I think is correct, but I am not a professional, and it could be off.

From my understanding, you can only start a Roth IRA or a 401K if you have earned income. You can contribute up to $4,000 annually to a Roth IRA provided you have earned at least this amount. If you have any earned income, it will show up on your taxes as will any IRA contributions you make during the same year.

Lesley

Lesley is 100% correct in her above point. You must have earned income in order to make a contribution to a regular IRA or Roth IRA. Interest from a bank account, dividends, or capital gains do NOT qualify as regular income. So unless you worked a job during the tax year for which you want to make a contribution, you cannot contribute to an IRA.

Also, assets held in retirement accounts are NOT considered in the EFC as calculated based upon your FAFSA data. Stated another way, you don't have to include the value of your retirement assets in the "Total Net Worth" question on your FAFSA.

So if you can contribute to an IRA in your dental school years, you should definitely do so. I've run through the numbers myself and it makes total sense. I've contributed as much as I legally can in my 2 years of school so far.

Good luck.