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.