We made a couple of early withdrawals from our 401 - do we have to count that as income when filling out financial sections of scholarships? It bumps up our income for the year but it is counted as income on our taxes
Early 401 Withdrawal-Do I have to add as income for scholarship application?
I’m fairly certain the answer is yes (unfortunately).
Normally when people access their 401k, it’s in the form of a loan unless they don’t pay it back within a certain period of time or they lose employment at that company. Are you sure you didn’t take a loan (which would not be necessary to report on income taxes or colleges)?
If the withdrawals show on your taxes as income then it was a true withdrawal not a loan and will be counted as income on your FAFSA. No way around that.
What year(s) did you take the withdrawals?
Don’t count it twice. If it is in your income for the tax year you are using for the FA application, don’t include it again under another line on the applications.
That may be true if the person is still employed by that employer, but often it is not possible to take the funds as a loan because the parent is no longer working for that employer. Also, some of us are old! so we can take 401k distributions and they are just regular old income. I don’t think it is ‘normal’ or ‘abnormal’ just one of the options for accessing 401k funds.
There are also limits on how much you can withdraw as a loan, both dollar amounts and as a percentage of your account.