My parent was laid off late June 2014. When he got laid off all the money in his 401k account was taken out and given to him. He then immediately transferred it to another savings program without spending any of it. When doing his taxes it appeared that he had 24k in untaxed pensions because of this. He only made a total of 51k this year and because of the untaxed pension I will not be able to receive any financial aid according to FAFSA. Is there any way to fix this?
I think there is only 60 days to put the money in a protected IRA to avoid it being treated as taxable income. I though the employer was required to withhold 20% taxes though. All income will have to go on the FAFSA. Are you sure you would have got much Pell Grant anyway? You are close to getting nothing if not already there. Do you qualify, like anyone, for your student loan.
–not an expert. your Dad should talk to an accountant to see if anything can be done at this late date.
You can contact your school’s financial aid office and explain what is going on, nd they will be able to assist you with the necessary documentaion. If the funds were rolled over to another retirement fund, your school should be able to take this into account for you and likely remove the 24k distribution. They are going to ask you for proof of this, which should be found in your parents’ 1040 Tax Return packet, documented on the form “1099-R.”
If nothing can be done, then you may have to ask if you can take a year off of school so that issue will go away.
Yes, there is. I had the same situation. If your parents used Form 1040, it probably looked something like this:
Line 16a pensions and annuities $24000 (amount of rollover) Line 16b taxable amount $0. Unfortunately the IRS retrieval tool can not be used to import your parent’s income into FASFA in this situation. If it was used then $24000 was imported and added to your parents AGI. Call your colleges financial aid office and explain what happened and that the $24000 was a rollover. This will not be the first time they’ve seen this. They should be able to correct the FASFA on their end. They may ask for verification but your father should have received a 1099-R. I don’t think you can correct the FASFA at this point, I think the school has to.
Yes, this sounds like a rollover. The company should have withheld 20% for taxes. But the dad could have added other funds to make up for the 20% withheld when rolling over. In that case, none of the rollover would be taxable. If the dad didn’t do that, then the 20% would be taxable and the 80% rolled over would be non-taxable.
Follow kgos16’s advice. The amount that was a legitimate rollover shouldn’t be counted against you but the school has to change your fafsa and will require proof. The DRT can’t tell if some or all of the distribution was rolled over so assumes it wasn’t.
I’m sorry about my first answer I thought I read that he put it in a savings account but you said program, so if it is a rollover and not a cash out, just tell the college. And I don’t think the direct rollover has to have withholding.
A direct rollover to a new company’s 401k wouldn’t require any withholding. But this wasn’t a direct rollover. The dad got the money in his hands and then rolled it over, probably to an IRA, and that would require withholding.
If your parent had a direct rollover…and you used the IRS data retrieval tool, that roll over will look like untaxed income. The DRT has no way of dealing with these. You need to contact your college and provide the documentation that this was a direct rollover…if it was.
It doesn’t matter if it was a direct rollover or not, and in the OP’s case it clearly wasn’t. Whether it was direct or not, the DRT will show it as untaxed income and the OP just needs to show there was a rollover, regardless of whether it was direct or not.
Thanks for the clarification, AD.