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Will 401K Rollover Affect Finaid?

AParentalUnitAParentalUnit Posts: 124Registered User Junior Member
I have a 401K from an old job I left a few years ago. It has fairly high fees, so I was hoping to roll it over to an IRA through a lower fee company.

Will this in any way negatively affect aid? It will save me a bit of money in fees, but if it will negatively affect my children's aid, I could wait until all of the college years are over.

Does it matter when I do this?
Post edited by AParentalUnit on

Replies to: Will 401K Rollover Affect Finaid?

  • vballmomvballmom Posts: 3,128Super Moderator Senior Member
    A rollover from a 401k to an IRA is not a taxable event, does not appear on your AGI and is not reported on any financial aid form. It will not affect financial aid. This is in contrast with a Roth conversion which is a taxable event and does appear on your AGI.
  • slipjigslipjig Posts: 580Registered User Member
    Make sure you have paper copies of your tax return if you are using the electronic link to your tax return on the FAFSA. I had a rollover IRA last year, and the section on the far left of the return is where the "Rollover" designation is. It doesn't seem to show up when you use the link.

    I had several discussions with: FAFSA people, admissions office people, financial aid people and state grant people before I got everything straightened out. I also had to fax paper copies of the first few pages of our return to the financial aid office and the state. I also had to fax letters of explanation to those offices.

    I had help from the experts on this forum. :)

    It was a real pain in the neck, but was resolved once everyone involved had the forms and explanations.
  • AParentalUnitAParentalUnit Posts: 124Registered User Junior Member
    Thanks for the advice. Sounds like it should not affect aid, but might be a hassle if needing to explain to FAOs. I'll have to think about what we will do, but I appreciate knowing the facts.
  • vballmomvballmom Posts: 3,128Super Moderator Senior Member
    I think so many people took advantage of the Roth conversion windows in the past couple of years that financial aid offices are pretty familiar with how IRA rollovers, conversions and re-characterizations might artificially inflate AGI. A 401k rollover is much simpler than a Roth conversion, fortunately. If you're careful about how you fill out your FAFSA, learning from the experience posted above by slipjig and others, then it should be a non-issue.
  • kelsmomkelsmom Posts: 12,291Super Moderator Senior Member
    Slipjig is right ... the IRS transfer doesn't recognize rollovers. You will need to contact the school & send a paper copy of the return (make sure ROLLOVER is indicated ON the return!) - they will have to make an update to your FAFSA. The reason is that the IRS link only sends certain info, and the rollover is one thing that doesn't get properly picked up with the direct transfer. It doesn't send the return - it just puts some info on the FAFSA.
  • AParentalUnitAParentalUnit Posts: 124Registered User Junior Member
    Thanks very much for the detailed responses. So helpful!
  • Joan52Joan52 Posts: 693Registered User Member
    I did a rollover in 2008 and my D entered college in 2009 so that 2008 was used. I had no issues, she got financial aid and I was not questioned about the rollover. If you do rollover, make sure you do it directly into the new account. If you have the check sent to yourself, they will take out 20% for taxes and you have only 60 days to get it back into a tax free account or it's all taxable.
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