Respectfully, if you're earning enough to put away money in IRA of any type -- not only for yourself, but also for your child -- you're not going to get anything from FAFSA (except offers of loans) or other need-based programs.
Is this true? My university used to offer a 100% loan-free ride to anyone with family income below $60K/year. It is easy to live just a couple of hours out in the sticks and live on <$60K, with some money left over. Moreover, I just got an email from them bragging that they have achieved this goal for all domestic students regardless of income, and now are working on doing that for all international students. One of the big California universities (forget which one, Stanford?) offers full rides for people with family incomes of $120K/year. I assume that out in the eastern sticks of the state that is a lot of money.
You guys are saying different things. What one single college/university does in regards to "need" based aid is separate from what the FAFSA does in qualifying you for federal grants and student loans. Colleges and universities will use the information you put on that form to make their own need based aid decisions for their students, but the cutoffs are different.
MrsPete actually said “from FAFSA or other need based programs” and I think there are plenty of examples that show that’s not true.
OP, you really need to familiarize yourself with both federal and institutional financial aid methodology to be able to make the best choice. Run your numbers through some net price calculators to see if you’re likely to get aid. If you are aid eligible, how you structure your and your children’s assets can make a big difference.
The reason is that while the FAFSA determines eligibility for federal grant, loans, and work-study, many institutions also use the FAFSA formula to allocate their own financial aid as well. So you fill out the FAFSA, it assigns you an Expected Family Contribution (EFC), and then the difference between the EFC and the total cost of attendance is your “need”. Schools that meet full need will give you a package of federal aid (usually loans and work-study) and institutional aid (often grants) to meet that need. Some schools use a different formula, called the CSS Profile, to determine need.
I’ll give you the example of my freshman aid package to illustrate. My parents made about $50k when I started college. I had $10k in my name saved for college in a regular taxable account. Our EFC my freshman year was $7k - $3500 based on my parents’ income and assets and 35% of my assets. In addition, there is a summer earnings contribution of $2400. Total cost of attendance at my college was around $32k. I was awarded $22,600 in need based financial aid (cost of attendance minus EFC minus summer earnings). I️t was about $4000 in federal loans, $2000 in work-study, and the rest was grants from my school. If those $10k in assets had been in my parents name or even better in an IRA in their name, our EFC would have been $3000-$3500 less and I would have received additional grants.
In addition, my school’s policy let any non-need based scholarships replace the loan portion of your award, so I had $3500 in scholarships that allowed me to only take out $500 in loans that first year.
All this varies wildly depending on the school, but it is wise to minimize your EFC under both the FAFSA and CSS Profile formulas to set your children up for maximum aid assuming your assets and income don’t put you well outside of aid range.