If you have followed me in the past, you know that I write about properly paying for college. The net cost of college is made up of a number of different factors. But a large one is your Expected Family Contribution (EFC)/Student Aid Index (SAI). For reference, the EFC will officially become the SAI moving forward starting in the 2024-2025 school year. These calculations are your family’s ability to pay based off the calculations set by the Department of Education. Whether you agree with the figures or not, well that’s up to you to decide.
In order to track your SAI, you need to complete the Free Application for Federal Student Aid (FAFSA). It’s an online form which will ask you a series of financial questions for both you and your child. These questions center around an all-inclusive picture of your income & assets along with your child’s income & assets. But there is an issue many FAFSA filers are encountering. If you’re having problems with the IRS Data Retrieval tool and an accurate reading of your EFC, it’s worth reading on.
What’s the issue?
The Department of Education has done it’s best to eliminate the hassle of having everyday Americans complete this document. Many families don’t know the complete picture of their 1040 tax return, and are often unsure of the answers to the FAFSA questions. As a result, they’ve established the IRS Data Retrieval Tool. This allows taxpayers to give authorization for the IRS to share & upload the tax return directly to the FAFSA. This typically works well, but often times there will be boxes that are missed that you may need to complete manually. It’s worth having your tax return handy when completing this information.
One noticeable problem is when the family has completed a qualified rollover of some sort in the “prior, prior” year in which the FAFSA is being filed. So far example, if filing for the 2024-2025 school year, you’ll want to use the 2022 tax return. In box 5a of the tax return, you’re likely to see the amount you rolled over. But in box 5b, you’ll see a $0 amount taken with the word “ROLLOVER” next to it. If you completed a qualified rollover that year, you could see the FAFSA pull that rollover of assets as income. There are numerous reasons why you want to get that fixed – financial aid being the main one.
The problem lies with the fact that you didn’t recognize a dollar of that as income. Instead, you did what you were likely instructed to do, which is move the funds to an existing 401(k) or IRA. But the FAFSA doesn’t necessarily recognize that. They see that the funds are in the “income” category, and they count it accordingly. Since parental income is a large driver in your SAI, you could be pricing yourself out of significant aid available.
So what do I do?
There are two solutions – one far more desirable than the other.
The first is to make sure you a) review your tax return in detail. In the event you had a rollover that year, you should complete that step manually, and not use the IRS Data Retrieval Tool. This will require a bit more work and due diligence up front. However, it will save you a lot of legwork on the back end.
The second solution is to call each and every school you’ve applied to and explain the unique situation. Needless to say, this is aggravation, time, and energy you don’t need to be spending. You may as well wait in line at the DMV all day as it will be as equally enthralling. The answer is simple – check to make sure you’ve properly accounted for any and all rollovers in the prior, prior year and proceed accordingly. You don’t want to make that mistake of pricing yourself out of aid or having to call each and every financial aid office to rectify it. So while you may experience problems with the IRS Data Retrieval Tool, with proper planning, there is a fix.
