Income matters more than savings in financial aid calculations Dear Liz: You write about it not being a good idea in many cases to pay off your mortgage, but does it make sense to do so to reduce savings so that we can be in a better position to help our high school junior get financial aid for college in a year? We also have a 529 and some investments and are savers. Answer: Your income matters far more to financial aid calculations than your savings, said Lynn O'Shaughnessy, author of "The College Solution: A Guide for Everyone Looking for the Right School at the Right Price (2nd Edition)." Another important factor is how many children you have in college at the same time. If you have a high income and only one child in college, you may not get much or any help, regardless of how your assets are arranged. Many schools ignore home equity when figuring financial need, however, so it might be worth running some numbers. You can do that by using the net price calculators included on every college website. Pick the schools your junior might want to attend and run two scenarios on each calculator: one with your current financial situation and another in which you've paid off your mortgage with your savings. Many parents are overly worried about how their savings will affect potential aid, O'Shaughnessy said. Parental assets, including 529 accounts, receive favorable treatment in financial aid formulas. Your retirement assets aren't included in the federal formula at all, and your non-retirement assets are somewhat shielded as well thanks to an "asset protection allowance." The older you are, the more of an asset protection allowance you get. The allowance will be somewhere around $45,000 for a married couple in their late 40s, the typical age for college parents. For those over 65, the allowance is $71,000. Beyond that, you're typically asked to contribute less than 6% of eligible assets toward your offspring's education each year. Think before stopping 401 (k) contributions Dear Liz: I want to stop contributing to my 401 (k). How do I cancel it and withdraw my funds? Answer: You can stop contributing to most workplace retirement funds by contacting your human resources department. You typically won't be able to withdraw the money, however, unless you can prove a hardship or you leave your job. You should think long and hard before you discontinue your contributions, in any case. For many workers, contributing to a 401 (k) is their best shot at a comfortable retirement. You may be unsettled by volatile investment markets now, but over time a diversified mixture of stocks and bonds should give you the returns you'll need to overcome inflation and have a reasonable nest egg. Not contributing to your 401 (k) could mean giving up free money in the form of a company match and could trigger a larger tax bill, since your contributions usually are tax-deductible. Money saved within retirement accounts, including 401 (k) s and IRAs, is also protected from creditors should you ever be sued or have to file for bankruptcy. If you're disgruntled with your plan because you think the fees are too high, ask your employer to look for a more reasonable-priced option. Now that 401 (k) administrators must fully disclose their fees, many companies will be looking for better deals. Questions may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or by using the "Contact" form at asklizweston.com. Distributed by No More Red Inc.