INHERITED QUALIFIED ROTH IRA
I inherited a qualified Roth IRA when my mother died recently which is not taxable. I received a 1099R form but since it is not taxable, am I actually required to even put on tax return? The reason I am asking is that when filling out my son’s FAFSA for college, if I put it on return, it transferred the full amount over to the FAFSA as untaxed income which they will count as parent’s assets. I have already used all of this money to pay off bills but they don’t take this in consideration.
Permalink Submitted by Alan Spross on Sat, 2010-02-13 18:57
Sorry to hear of your loss.
You do not need an 8606, but are supposed to enter the distribution on line 15a, but not 15b of Form 1040. Since it will not show as taxable income OR in AGI, will it still affect FAFSA?
Permalink Submitted by KATHERINE WILSON on Sun, 2010-02-14 05:00
YES, THERE IS A SECTION ON THE FAFSA THAT ASKS FOR UNTAXED INCOME EVEN IF NOT TAXABLE ON THE TAX RETURN. THEY WANT TO KNOW ABOUT UNTAXED SOCIAL SECURITY, INHERITANCE, DISABILITY,ETC. AND THIS IS FIGURED INTO THEIR TOTALS WHICH IN TURN AFFECTS THE STUDENTS EFC FOR GRANTS AND SCHOLARSHIPS. THEREFORE, IF THE UNTAXABLE ROTH IRA DISTRIBUTION IS PUT ON THE TAX RETURN TO BEGIN WITH AND THEY ASK TO VIEW IT (WHICH THEY DID LAST YEAR), THEN IT WOULD GREATLY AFFFECT HIS CHANCES OF RECEIVING ANY ASSISTANCE. NOT KNOWING THIS, I HAVE ALREADY USED ALL OF THE PROCEEDS TO PAY OFF SEVERAL LOANS AND CREDIT CARDS, THINKING THIS WAS THE BEST THING TO DO AT THE TIME. SO NOW I HAVE NO MONEY LEFT AND MY SON IS NOT GOING TO GET THE SCHOLARSHIPS/GRANTS THAT HE HAS BEEN ENTITLED TO IN THE PAST IF I HAVE TO PUT THIS UNTAXABLE ROTH IRA DISTRIBUTION WHICH I HAVE A 1099R FOR ON MY TAX RETURN AND FAFSA APPLICATION.
Permalink Submitted by Alan Spross on Sun, 2010-02-14 19:27
The instructions indicate that the Roth distribution should go on line 15. But if there is a part of the FAFSA formula that reflects assets and not income, at least your assets should not increase. Your inherited Roth balance reduction and the decrease in your liabilities should offset for the asset part.
Legal strategies to max out education aid are out there, but it probably requires planning this out a couple years in advance of any applications, but even then may not be easy to execute.