How An IRA Rollover Could Impact Your College Costs

Here’s an impact of an IRA rollover that you may not have thought of:  depending upon how you handle your rollover, you could impact college financial aid – either your own if you’re working and attending college, or more likely, that of your child.

How could this happen?  Since a rollover doesn’t cause you to incur taxable income, how might it cause an impact on financial aid?

Well, if you don’t do a direct, trustee-to-trustee transfer, that is, if you take possession of the funds from a rollover and complete it within 60 days, you’ll have to declare those funds as part of your gross income on your tax return.  This is where many colleges get their information for financial aid calculations.

So, this is another case where it makes good sense to always do a rollover by way of a direct trustee-to-trustee transfer rather than the 60-day rollover.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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2 Comments

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  • Hi, Joel –

    Unless there is an offset to the income (such as a carried-over loss from a business), converting money from an IRA to a Roth IRA *will* result in an AGI increase. This will have an impact on your children’s financial aid calculations unless you can find a financial aid officer to work with you – which I would find rather hard to believe.

    Your best bet to avoid an impact on financial aid would be to wait until the kiddos have finished up with college and then begin pulling the trigger – in my opinion.

    jb

  • Hi Jim,
    I wish to start transferring my sep ira(tax free) to my roth ira, so I will ultimately be able to make tax free withdrwals and other benefits.

    The question is i have 3 kids in college and I dont want to effect their financial aid awards. This is a zero financial gain transaction that is taking either money or mutual fund asset and transferring into the roth account. I know taxes are paid on the amt movd. I figured that since the market is in the toilet,might as well move some now. How or is it possible to have financial aid uneffected. One school did say that by calling them , they can make an adjustment to to agi if it enters into the picture. Can they do that?
    Thanks for your help. I dont want to pull the trigger until im really satisfied

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