<img height="1" width="1" style="display:none" src="https://q.quora.com/_/ad/bdd9d941ae754c498fe2d2326d029ffa/pixel?tag=ViewContent&amp;noscript=1">

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 Education costs are not qualifying expenses and therefore, if withdrawn before the age of 59½, will result in taxes and penalty fees for taking the money out early.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Reporting an IRA distribution on the FAFSA application is different depending on how and when the money was withdrawn.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.

Edmit's advice helps you to be better off after graduation.

  • Merit and financial aid estimates based on your student profile
  • Earnings estimates and financial scores for your college and major
  • Recommendations to save thousands on college

Sign up for updates

Popular Tags

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