does roth ira $ taken out for QEEs count as income?
if so, let’s say i take out $10k in 2018. What school year would that effect the EFC of my kid?
how much would $10K effect the EFC?
trying to do only subsidized loans here. D will not qualify for one in 2019/20 as she’ll be only kid in college at state school; in 20/21 we’ll be back to 2 in college and will be back to qualifying for subsidized. appreciate your thoughts. i just cant quite figure this all out; and dont know if roth counts as income.
A distribution from a Roth IRA must be reported as untaxed income. If you take the distribution in 2018, it would be reported for the 2020-2021 academic year. How much it would effect the EFC depends on a variety of factors. If you want to have an idea, run through the currently available EFC formulas using different scenarios.
thanks. counts as untaxed income just on fafsa efc; not on IRS taxes. right?
Have a plan now! will take it out in 2019 which effects 2021/22 yr when i’m back to just one in college. (although D16 will be in grad school then. Is EFC for undergrad kid affected by grad school student?)
No; a qualified Roth distribution is also reported on an IRS tax return as untaxed income: line 15a of a 2017 form 1040 and line 11a of a 2017 form 1040A. The 2018 forms are still a work in progress.
Unless the roths are extra, like backdoors for high income earners, who see no state or tax advantage to a 529, or those who might not like 529 limitations or someone didn’t have access earlier in the game. Roth holders might easily have defined benefit pension and a 401K. It looks like 529s are not a simple choice for all college savers.
@“Iron Maiden” I don’t necessarily agree with such a blanket statement. While I agree that using retirement savings that you actually need for retirement is a bad plan, Roths have some advantages over 529s for certain situations, as @Sybylla has pointed out.
From personal experience I can tell you that we opened Roths instead of 529s because:
We thought there was a good possibility that our kids would get substantial scholarships and we could get "stuck" with money in a 529 that had limitations. With the Roths, if we don't need that money to pay for college, we might be able to retire earlier.
From my research, Roth IRAs are considered retirement assets for financial aid purposes, and generally are not considered "available" to pay college expenses. The 529 money would be fully "available". This could certainly impact the EFC
We decided that 1 and 2 were more important than the limited tax advantages that we would have with a 529
Now, we have also saved aggressively for retirement in our 401K plans, and wouldn’t dream of taking distributions from those.
Just remember you can’t double dip on education tax benefits. So you cannot use the same QEE to claim the AOTC and the tax free treatment of your early Roth IRA withdrawal.
Roths come out contributions first. There’s no need to forgo the AOTC unless you’re taking out more than lifetime Roth contributions. This is different than how 529s work, where funds come out prorata.
ok I did NOT know that about how taking the AOTC is affected if using roth contribution funds to pay QEE -
so basically make sure to pay $4k QEE from pocket, and claim the AOTC; and then the rest of QEE can be paid for with ROTH distributions from the contribution amount. right?
(and yes as mentioned above, we have a pension plan and ROTH is not considered part of our retirement plan. it’s small.)
*** I’m really in the flyover midwest area. Talked to our financial advisor who lives in a different world. He was talking about the pain of the last payment for his kids who go to NESAC schools. I knew what they were, thanks to CC! (Can’t identify with his situation/his whole family international trips and his primary lack of Roth knowledge because he obviously doesnt qualify for one-- but i knew about his kids’ schools).
I don’t think so. A Roth distribution that consists entirely of contributions is not tax advantaged in any way. You’ve already paid tax on that money. If you use the Roth contribution money to pay for QEE, there shouldn’t be any problem using these expenses to claim the AOTC.