One of the most baffling questions about the FAFSA is “When?” As in, “When do my assets count?” Or “When does my income count?” Or “When can I claim a tax credit?”
This year’s FAFSA and CSS Profile use 2021’s income. Assets are counted at their value on the date you file. So when you file the FAFSA or Profile, log into your accounts and check all of your balances first. And of course, pay your big bills– mortgage or rent, credit card bill, etc.– and make any larger purchases you’re going to make anyway before you file to remove assets from your accounts.
To summarize whether or not you’re filing the FAFSA this year:
- Your first FAFSA income year is the year that begins Jan. 1 of sophomore year of high school and ends Dec. 31 of junior year. That means that planning for the FAFSA starts well before filing the FAFSA.
- Your assets are your account balances on the day you file.
- You claim the American Opportunity Tax Credit for four years while your student is in college.
It’s possible that different strategies are more beneficial in different years, depending on what that year’s income counts for. For example, in an AOTC year it can be beneficial to make pre-tax retirement contributions to lower your Adjusted Gross Income to become eligible for the AOTC, whereas in a FAFSA year, Roth contributions lower your available income by increasing your taxes.