The Free Application for Federal Student Aid (FAFSA) now uses the Student Aid Index (SAI), replacing the long-standing Expected Family Contribution (EFC). The goal remains the same — measure a family’s ability to pay for college — but the calculation has changed in ways that can affect eligibility.
The updated formula allows for negative SAI values, which can expand aid for some families. That shift matters for many of our Feds balancing retirement savings, college planning, and rising costs. Understanding how your income shows up in the FAFSA calculation can make a meaningful difference over time. The same is true for how retirement contributions affect FAFSA aid, especially when you are using pre-tax savings strategies.
What “Income” Means in the New Formula
The FAFSA pulls from tax returns filed two years back. A 2026–2027 application uses 2024 income, which means most of the numbers are already set by the time you apply.
Income includes wages, taxable income, and certain types of untaxed income. For federal employees, base salary, bonuses, and most forms of compensation count fully in the formula. The system does not discount federal employment — it simply looks at the numbers reported on the tax return.
This is where the details matter. Two households with the same salary can land in very different spots depending on how that income shows up on the return.
Where Federal Benefits and Savings Decisions Fit in
Retirement contributions play a quiet but important role. Pre-tax contributions — such as those made to the Thrift Savings Plan (TSP) or a traditional IRA — reduce taxable income. A lower adjusted gross income (AGI) can improve aid eligibility under the formula.
That can improve aid eligibility under the formula. Increasing pre-tax contributions may lower the income used in the SAI calculation, potentially improving aid outcomes.
Roth contributions work differently. They do not reduce current taxable income, so they do not lower FAFSA-reported income in the same way. That does not make Roth contributions a bad choice—it just means they do not help with aid calculations in the current year.
Assets Still Matter — but Not All Equally
The FAFSA categorizes assets, and their treatment varies.
Retirement accounts, including the TSP, do not count as assets. That is a major advantage for long-term savers.
Non-retirement assets do count. These include:
- 529 plans(typically treated as a parent asset if owned by the parent)
- Brokerage accounts
- Cash and savings outside retirement accounts
Student-owned assets carry a heavier weight in the formula than parent-owned assets. That distinction can influence how families structure savings over time.
Learn more about your retirement benefits at our No-Cost webinars, featuring Ed Zurndorfer -
Planning Around Real-Life Tradeoffs
Most mid-career Feds face competing priorities at the same time. You may be increasing retirement contributions, building college savings, and managing day-to-day expenses.
A balanced approach tends to work better than chasing aid outcomes alone:
- Continue prioritizing retirement security, especially if you are behind on savings.
- Use tax-advantaged accounts strategically rather than reactively.
- Stay aware of timing when large income events or withdrawals are involved.
This is where understanding how retirement contributions affect FAFSA aid becomes part of a broader strategy, not the only lever.
Common Misunderstandings About FAFSA and Aid
The same assumptions tend to come up when Feds start looking at aid.
Lower income does not automatically mean more aid. The formula looks at more than just your paycheck, so two families with similar incomes can end up in very different places.
Assets are not all treated the same. Retirement accounts like the TSP get favorable treatment, but savings in a student’s name can have a much bigger impact on aid eligibility.
You cannot fix this at the last minute. FAFSA uses prior-prior-year income, so by the time you are filing, most of the inputs are already set.
A Practical Way to Think About Aid Eligibility
Do not treat FAFSA as a standalone decision. It sits on top of everything else you are already doing — earning, saving, and planning for retirement.
Some adjustments may modestly improve aid eligibility. Increasing pre-tax contributions or being thoughtful about when income hits can shift the numbers a bit. But those are fine-tuning decisions, not the strategy itself.
The bigger picture matters more. A strong retirement plan, consistent savings, and a realistic college funding approach will do more for you than trying to chase a slightly better aid outcome.
Keep FAFSA in Perspective
FAFSA factors into the decision, but it should not drive it.
Most Feds benefit from staying consistent with retirement contributions, building college savings where appropriate, and understanding how income flows through the formula. Those decisions work together over time.
Aid calculations can change from year to year, but retirement and college planning decisions generally work best when approached consistently over time.
Rules change, and everyone’s situation looks different. Before making any big moves, confirm the current rules and talk through your options with a qualified advisor.
If you want help aligning these pieces, reach out to the Serving Those Who Serve team at [email protected].
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
