The FAFSA asks about income numerous ways: it collects your tax return data through the IRS Data Retrieval Tool and then poses a number of additional questions about income. So let’s look at those.

Many families– and also many financial professionals– believe that reducing their adjusted gross income by increasing 401k contributions will result in a lower Expected Family Contribution from the FAFSA.

Parent income tends to be overlooked in FAFSA planning, which is unfortunate because for most families it’s the biggest piece– and one that has some real planning opportunities.

Friends are having a FAFSA nightmare: their daughter’s EFC came back as 60% of their income. They suspect the reason for this is that he consolidated his retirement accounts, rolling several over into a single larger account, and that some or all of that rollover is showing as an IRA distribution.

While it’s true that there is an income protection allowance on the FAFSA, it’s extremely low– roughly the federal poverty line for a family of your size. The bigger issue is what is included in income and what is subtracted from it to arrive at “Available Income.”

FAFSA does have a minimal income protection allowance. For parents, it tracks the federal poverty line fairly closely but has an additional variable of number attending college. For students, it’s a flat $6,420.

This is one of those things that seems fairly straightforward but has a definite peeling the onion feel to it. What is Income for purpose of the FAFSA?