College planning...the RIGHT way! Subscribe for FREE tips!


Start planning NOW!

Should I Increase My 401K Contribution To Get More Financial Aid?

401K Tax Strategies for College
by Tom Bottorf


Our son is a junior in high school. I’ve heard that lowering the Adjusted Gross Income we declare on the FAFSA form should help our financial aid eligibility when he begins college. Is increasing my 401K contribution therefore a good strategy for getting more financial aid?


NO! In fact increasing your 401K contributions will not affect your eligibility one cent! The “strategy” of maxing out a 401K contribution in order to optimize financial aid is a misconception shared by many.

Now it’s true that your 401K contributions are indeed tax-deferred and will reduce your Adjusted Gross Income (AGI) dollar-for-dollar. But the FAFSA form asks about your “payments to tax-deferred pension and savings plans”. This amount is an “add-back” to your AGI on the FAFSA form.

While 401K contributions may provide a good tax strategy and savings plan for retirement, they offer nothing to improve your financial aid eligibility because of the FAFSA methodology.

If you enjoyed this article, get our email updates!

Get updates!

Back to blog

Warning: require_once(/home/getcolle/public_html/wp-content/themes/gcf_2012/images/cache/388a87788425b48857386712cbddd2fe/cache.php): failed to open stream: No such file or directory in /home/getcolle/public_html/wp-content/themes/gcf_2012/images/settings.php on line 6

Fatal error: require_once(): Failed opening required '/home/getcolle/public_html/wp-content/themes/gcf_2012/images/cache/388a87788425b48857386712cbddd2fe/cache.php' (include_path='.:/usr/lib/php:/usr/local/lib/php') in /home/getcolle/public_html/wp-content/themes/gcf_2012/images/settings.php on line 6