$200k Earner Ditches Roth To Game College Aid

Steve from Pennsylvania earns around $200,000 a year and has a son heading toward college. He has been redirecting retirement contributions from Roth to traditional accounts for one specific reason: schools like Harvard, MIT, and Yale now offer free or heavily reduced tuition to families earning below that threshold, and he wants to land below it. He asked Clark Howard whether this was a smart exception to Howard’s well-known Roth preference. Howard’s answer was a clear yes.

“Yes, in your situation, just as the one recently about health insurance, completely right that what a traditional 401(k) or a traditional IRA or both, what they do is they bring down your income enough, in many cases, below thresholds where other benefits accrue to you that you would lose if you were listening to the man from Roth, which is who I am, and just doing that automatically. There can be exceptions.”

The reasoning behind Steve’s approach centers on how pre-tax retirement contributions affect Adjusted Gross Income, and why that matters for income-based financial aid programs.

Why the $200,000 Line Matters So Much Right Now

A wave of elite universities has converged on $200,000 household income as the threshold for free or near-free tuition. Harvard, MIT, and Penn have all expanded their aid policies to eliminate tuition for families at or below that level, and Yale announced in January 2026 that it would do the same beginning in fall 2026. The momentum is real and growing.

At schools where annual tuition exceeds $60,000, a family that qualifies for free tuition avoids more than $240,000 in costs over four years.

Harvard, MIT, and Penn have all expanded their aid policies so that families earning up to $200,000 pay no tuition. Yale announced in January 2026 that it would cover tuition entirely for families earning below $200,000, beginning in fall 2026.

The income figure that matters for most of these programs is Adjusted Gross Income (AGI), the number on your tax return after subtracting things like pre-tax retirement contributions. That is the lever Steve is pulling.

The Math Behind the Strategy

For 2026, the IRS allows workers to contribute up to $24,500 to a traditional 401(k) and up to $7,500 to a traditional IRA. For someone like Steve, earning right at the $200,000 threshold, maxing both account types can move his reported AGI comfortably below the cutoff most schools use.

Steve notes that FAFSA uses “prior-prior year” income, meaning the application filed during a student’s senior year of high school uses income from two years earlier. He is already implementing the strategy while his son is in the middle of high school and plans to continue through the middle of college. That window is roughly five to six years of tax returns influencing financial aid calculations, which means five to six years of traditional contributions instead of Roth.

The tax cost is real but manageable. At $200,000 gross income, a married couple filing jointly sits in the 22% or 24% federal bracket depending on deductions. Choosing traditional over Roth means deferring taxes on those contributions rather than paying them now. If Steve retires at a lower income level, he will ultimately pay less tax on those dollars than he would today. If he retires at a similar or higher income, the Roth would have been better. But that calculus changes entirely when the alternative is losing a six-figure tuition benefit.

The FAFSA vs. CSS Profile Wrinkle

FAFSA and the CSS Profile treat retirement contributions differently.

Under the FAFSA’s updated formula, contributions to workplace retirement plans are no longer added back to the Student Aid Index calculation, meaning maxing a 401(k) can genuinely reduce the aid formula’s view of your income. That is the favorable rule Steve is working with.

The CSS Profile, used by roughly 265 private colleges and universities to award institutional aid, is a different story. Many of those schools add pre-tax retirement contributions back into their income calculation, which would partially or fully neutralize the strategy. Families targeting a school that relies heavily on the CSS Profile should verify how that school treats retirement contributions before assuming the same income reduction will apply.

The schools with the most generous income-based tuition programs, including Harvard, Yale, and MIT, use their own aid formulas. Families should check directly with each school’s financial aid office to confirm how AGI is defined for their specific program.

Who This Works For and Who Should Think Twice

Steve’s situation has three features that make this strategy effective. His income is close enough to a meaningful threshold that retirement contributions alone can move him below it. He is targeting schools with explicit income-based free tuition policies, where the payoff for crossing the threshold is binary and large. And he maxes all tax-advantaged accounts regardless, so the only question is account type, not contribution amount.

The strategy is less compelling for a family earning $250,000 or more, where traditional contributions alone cannot bridge the gap to the $200,000 threshold. It also matters less if the student is targeting schools without strong income-based aid policies, or schools that use the CSS Profile and add retirement contributions back to income.

Families with significant non-wage income, such as capital gains, rental income, or business distributions, face an additional challenge: those sources are not reduced by retirement contributions and still appear in AGI. A family earning $150,000 in wages and $60,000 in investment income may find the strategy less effective than a family whose income is almost entirely from wages.

What to Do Next If You Are in a Similar Position

Families in similar situations may want to review their most recent tax return and identify their AGI. Comparing it to the income threshold at each school a child is seriously considering can clarify whether the strategy applies. Looking at how much AGI would fall by maximizing traditional 401(k) and IRA contributions can reveal whether that reduction gets below the threshold at schools with meaningful tuition benefits.

Contacting the financial aid office at each target school to ask two specific questions can be informative: what income figure is used to determine tuition eligibility, and whether pre-tax retirement contributions are added back into that figure. The answers will indicate whether the strategy applies or whether the CSS Profile will neutralize it.

The window for this strategy is narrow. Financial aid calculations look back two years, so families with a high school sophomore or junior have the most to gain by beginning this planning soon.

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