Parent Perspective: Does My Roth IRA Impact My Child’s Financial Aid?

As a parent, you’ve done the responsible thing: saved for retirement in a Roth IRA, and maybe even kept it in mind as a backup for college expenses. But if your child is applying for financial aid, you might be wondering: Will my Roth IRA hurt their eligibility?

Here’s how your Roth IRA is treated under financial aid formulas—and what to watch out for when planning college costs.

FAFSA and Parent Roth IRAs

The Free Application for Federal Student Aid (FAFSA) takes a fairly parent-friendly approach to retirement savings:

• Your Roth IRA is not counted as an asset. When completing the FAFSA, your retirement accounts—including Roth IRAs—are excluded from the asset calculation. This means your savings for retirement won’t reduce your child’s aid eligibility.

• Distributions from your Roth IRA are counted as income. Even if it’s a tax-free withdrawal, it must be reported as untaxed income on the FAFSA. That income can significantly increase your Student Aid Index (SAI) in the year after the withdrawal.

Example: If you take a $10,000 Roth IRA distribution in 2025 to help pay for your child’s freshman year, that $10,000 is reported on the FAFSA for their sophomore year and could reduce their aid eligibility.

CSS Profile and Parent Roth IRAs

The CSS Profile, used by many private colleges, takes a more detailed look at your finances:

• Roth IRA balances may be considered. Some CSS schools include retirement accounts as part of your available assets.

• Distributions and contributions may also be scrutinized. If you take money out of the Roth IRA or make large contributions, that activity may be seen as available cash flow and affect your child’s aid award.

Smart Moves for Parents

• Avoid tapping your Roth IRA until after your child’s final FAFSA is filed.

• Use 529 plans if you're specifically saving for college. They’re generally more financial-aid friendly.

• Work with a financial advisor to coordinate college funding and retirement planning in a tax-efficient, aid-conscious way.

Need help aligning your retirement savings with your child’s college strategy? Let’s talk.

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Disclosure: This content is for informational and educational purposes only and should not be interpreted as financial, legal, or tax advice. While we strive for accuracy, we do not guarantee the completeness or reliability of the information provided. Investment decisions should be based on individual circumstances, and we recommend consulting a qualified professional before implementing any financial, legal, or tax strategies. Past performance is not indicative of future results, and all investments carry risks, including potential loss of principal. No investment strategy can guarantee success or protect against loss in all market conditions. Investors should carefully consider their risk tolerance, investment objectives, and financial circumstances before making investment decisions.