Edmit logo

How is a Distribution from a ROTH IRA Treated for FAFSA?

Featured Stories

Filter By Categories

Knowing what to include on your FAFSA application can be tricky. If you have questions about how to handle your retirement plan distributions on your application, you’ve come to the right place.


You will never have to report the value of qualifying retirement plans on the FAFSA application. What you will have to report is any voluntary contributions to or distributions from those plans that took place in the tax year prior to your FAFSA application.


Roth IRA Distribution Requirements

A distribution (or withdrawal) from a Roth IRA is tax-free and penalty-free provided that certain qualifications are met. This might include using the money to purchase a first home or for non-reimbursable medical expenses.


If you are thinking about using your Roth IRA for education expenses, though, think again. Education costs are not qualifying expenses and therefore, if withdrawn before the age of 59½, will result in taxes and penalty fees for taking the money out early.


Roth IRA Distributions on the FAFSA

Reporting an IRA distribution on the FAFSA application is different depending on how and when the money was withdrawn.


If you meet the requirements for untaxed distribution (i.e., over 59½ and had this IRA for over five years, under 55 and use the funds for a qualifying purpose), any withdrawal or distribution from a Roth IRA account made in the tax year prior to completing a FAFSA application must be reported on the FAFSA application as untaxed income. You will provide this value in section #94.


If you did not meet those untaxed distribution requirements and paid taxes on the withdrawal of your funds, you will need to report this as part of your adjusted gross income (AGI). You will provide this number on question #85.


Converting from one retirement plan to another does not apply and should not be included on your FAFSA application. Note that if you use the IRS Data Retrieval Tool to complete your application, it will erroneously count your rollover as untaxed income and cannot be changed manually on the application. If this is the case for you, contact your financial aid office immediately.


Effect of Roth IRA Distributions on the FAFSA

The sum of your taxable and nontaxable income combines to help generate your Expected Family Contribution (EFC), used to determine the amount of aid you will receive. Since your retirement plan distributions count as either taxable or nontaxable income, you will significantly increase your EFC (meaning you will be expected to contribute more money) and reduce your need-based financial aid eligibility.


There is no way around this required documentation of your IRA distributions. If possible, your best bet is to wait until you will no longer need to request federal aid before withdrawing funds from your IRA.


For more information, read our article on the impact of retirement plans on the FAFSA.

Sign up for updates

Popular Tags

Financial Aid and Scholarships* paying for college financial aid Cost of College* grants and scholarships FAFSA Student Loans* Saving for College* federal student loans college tuition cost of attendance 529 plan college financial planning financial aid award expected family contribution private student loans taxes room and board college savings plan on-campus housing college applications application fees merit-based financial aid private universities public universities student loan assistance college expenses federal financial aid merit scholarships Salary and Career* budgeting for college edmit hidden gems tuition discount financial need parent PLUS loan southern colleges CSS profile college costs edmit team education expenses living expenses western colleges financial aid appeal income midwestern colleges off-campus housing affordable college college majors loan forgiveness northeast colleges application fee waivers degree programs edmit scholarship institutional aid loan repayment new england colleges choosing a major net price prepaid tuition plans work-study SAT career choosing a college in-state tuition international students need-based financial aid need-blind colleges private scholarships qualified higher education expenses repayment plans tuition guarantee 401k ACT UGMA UTMA budget college ranking systems discretionary income education savings accounts fees free tuition full ride scholarship grants great lakes region colleges health insurance options investment ivy league schools meal plans mid-east region colleges need-aware colleges plains region colleges rocky mountain schools southeastern colleges southwestern colleges student loan debt tuition payment plans 568 presidents group Inversant MEFA applying to college asset protection allowance best price campus life college advisor college deposit college search college spending concurrent enrollment cost by region cost by state crowdfunding educational expenses esports fee waivers financial literacy fraternities and sororities full tuition gap year home equity loan income share agreements internships liberal arts degree line of credit medical expenses military benefits out-of-state students out-of-state tuition percent need met private college consultant retirement savings saving school-based scholarships small business standardized testing state aid state schools student bank accounts student organizations title IV schools travel expenses tuition decreases tuition increases tuition reciprocity undocumented students