Do I Include Retirement Accounts on FAFSA?

The Free Application for Federal Student Aid (FAFSA) is a fundamental form used to determine eligibility for federal student financial aid, including grants, scholarships, and loans. This process involves reporting your household’s financial assets. Understanding which assets to include and exclude is important for accurately completing the FAFSA and maximizing potential aid. This article clarifies how various assets, particularly retirement accounts, are treated for FAFSA purposes.

Retirement Accounts and FAFSA Reporting

Most qualified retirement accounts are not reported as assets on the FAFSA. This exclusion applies to common retirement savings vehicles like 401(k)s, 403(b)s, Traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, and pension plans. These accounts are intended for long-term financial security, not immediate educational expenses. This policy aims to avoid penalizing families for diligently saving for their future.

While account balances are not reported, distributions taken from retirement accounts can impact FAFSA calculations. If a distribution is included in your adjusted gross income (AGI) on your tax return, it will be reflected in the FAFSA’s income section. Even tax-free distributions, such as those from a Roth IRA, may need to be reported as untaxed income if not already part of your AGI. However, the underlying value of the retirement account itself remains excluded.

Assets Not Included on FAFSA

Beyond qualified retirement accounts, several other assets are not reported on the FAFSA. The equity in your family’s primary residence is not counted as an asset; the difference between its market value and outstanding mortgage debt is disregarded.

Certain small business assets are also excluded if they meet specific criteria. For academic years starting on or after July 1, 2026, a family-owned and controlled small business with fewer than 100 full-time equivalent employees does not need to be reported. The value of life insurance policies and qualified annuities are also not reported on the FAFSA. These exclusions help ensure that the FAFSA focuses on readily available funds for educational contributions.

Assets Included on FAFSA

A range of assets must be reported on the FAFSA as available for educational expenses. These include current cash, savings, and checking account balances. The FAFSA asks for the combined amounts of these liquid assets as of the day the form is completed.

Investments not held in qualified retirement accounts are also included. This encompasses money market accounts, certificates of deposit (CDs), mutual funds, stocks, bonds, and other non-retirement brokerage accounts. Additionally, specific educational savings plans, such as 529 plans and Coverdell Education Savings Accounts (ESAs), when owned by the student or parent, must be reported. Real estate other than the family’s primary residence, such as vacation homes or rental properties, is also included.

Completing the FAFSA Asset Section

After identifying and valuing reportable assets, input this information into the FAFSA form. The application separates assets into “Student Assets” and “Parent Assets” sections, where you provide the aggregated net worth of your investments. The net worth of an asset is calculated by subtracting any debt secured by that asset from its current market value.

Report values as of the “snapshot” date, which is the day you complete the FAFSA. The FAFSA requests current values, meaning the amounts held in accounts on that particular day. For assets like cash in checking and savings accounts, accurately reflecting the balance on the submission date is essential.