Roth IRA distribution (contributions only)
I have what I thought was a straightforward question along with a established answer. Now I am not so sure.
Client established a Roth IRA for their minor child.
“child” is now in college.
Child would like to take a tax/penalty free distribution of contributions
The distribution is tax/penalty free and reportable on form 8606 –
Question
Could the tax free distribution impact student aid?
If so, what kind/type of aid is generally impacted?
I was under the impression a tax free Roth distribution was not reportable on FAFSA and would not impact aid. I am not so sure after reading a few columns on savingforcollege.com
All help is appreciated
Thank you
Permalink Submitted by Alan - IRA critic on Wed, 2018-01-17 02:00
Yes, the Roth IRA distribution will reduce the aid whether it is taxable or not. In addition, the income used to make the Roth contribution also counts as income. Therefore, it is helpful for any Roth distributions to be delayed until after the last FAFSA form is completed.