Under federal rules, does a non-taxable IRA Roth Conversion impact school financial aid?

The reason that converting a regular IRA to a Roth IRA may impact your child’s need-based college aid eligibility is because the conversion income will be counted on the financial aid forms, the FAFSA and the CSS Profile.

Does a Roth conversion count as income on FAFSA?

A return of contributions from a Roth IRA is tax-free. The full amount of the distribution is counted as income on the FAFSA, as part of adjusted gross income (AGI) or as untaxed income, as appropriate.

Does Roth IRA affect CSS?

It’s important to note that retirement accounts (401ks, IRAs, Roth IRAs, pension plans, etc.) are not included on either the FAFSA or CSS profile calculation, however the CSS profile will ask for retirement asset values.

Can you do a Roth conversion without paying taxes?

Leveraging Your 401(k) Plan



All-new, non-tax-deductible traditional IRA contributions can then be converted into Roth IRAs without tax consequences.

Does Roth IRA affect college financial aid?

The mere existence of a Roth IRA will not affect eligibility for need-based aid. However, if the taxpayer uses the money in a Roth IRA to pay for college, it will reduce eligibility for need-based aid in a subsequent year.

Should Roth IRA be reported on FAFSA?

Retirement accounts aren’t counted as assets on the FAFSA (so you don’t have to report the balance of your Roth IRA). However, withdrawals from a retirement account, such as a Roth IRA, are counted against the FAFSA.

How does Roth conversion affect FAFSA?

For every $10,000 of taxable income stemming from a Roth conversion, the parents’ expected annual contribution to that student’s education would go up by $3,200 in a FAFSA estimate.

Does college financial aid look at retirement accounts?

Retirement savings are not reported on the FAFSA. This includes any recognized retirement plans such as 401(k) plans, pension funds, and annuities.