We recently attended our daughter’s orientation. We spoke with a financial aid officer and turned in an IRS Tax Verification form as requested. A couple of days after we returned, I received a message from FASFA that our FASFA had been altered by the school. Previously our EFC was under $5k (our gross income last year was under $70K), suddenly it was $25K!
I immediately called the school financial aid office. They indicated that based on the IRS Tax Verification form, the school had counted an early retirement disbursement from my former employer - that we had rolled immediately into a Roth IRA - as income!
When I explained that we had placed it in a retirement IRA and had no intentions of touching it until retirement (I’m 54) they said we should fill out a special exceptions form and send along documentation, which I have done. I have tax forms from my former employer and from our financial advisor. I have not heard back yet.
I’m freaking out because they’ve already revoked her Pell Grant, and I can see other grants/loans getting revoked due to the incorrect EFC as well. In addition, the high EFC will limit any other scholarships she may qualify for. We can barely afford college as it is.
Has anyone else had this happen, and had it end up OK? Any suggestions?
The distribution was taxable and already included in AGI?
I’m not sure what an AGI is, sorry! I don’t believe we paid taxes on it. My former employer gave me a couple of options last year; to just stay in the retirement plan and get whatever the monthly payment was when I retired, or to take what they determined was the current value of the funds now and opt-out of the retirement plan from them altogether. We took the money and rolled it into our IRA, which was a rollover from their 401k plan when I left 10 years ago. I have a 1099R (0 taxable amount listed) from my former employer’s retirement service and a Form 5498 from Well Fargo, our advisors.
When we did out taxes this year, we did not pay any extra tax that I am aware of, nor sis our CPA have any issues with the rollover that he felt the need to tell us about. Is there someplace I can look on our tax return to be sure? I think we’ll get taxed on it when we use it?
THANKS for your help!
Relax. The school didn’t decide the rollover amount was income - they had to assume it was, and you have to prove it wasn’t. This is because the info provided for documentation of your taxes (either a tax transcript or the IRS DRT) did not indicate that it was a rollover - the rollover “income” is reported, but the way the tax transcript and the IRS DRT work, there is no way to know it was from a rollover. (Back when a paper copy of the tax return was submitted for verification, it DID say “Rollover” … the tax transcript and the DRT do not have that notification.) You did the correct thing by sending the documentation to prove that it was a rollover. The aid office will remove the income manually for the rollover amount. If they don’t do it, you can follow up with them to make sure that your information didn’t somehow get overlooked. In the end, though, the rollover amount will have to be manually removed by the aid office.
From Internet:
Thanks for the clarification. I did look on the form from our financial advisor and it has a line that says Rollover Contributions and lists the amount we deposited, and then the next line that says Roth IRA Conversion Amount and that says 0. So it sounds like we did do a traditional IRA, not a Roth, which I believe is the better of the two choices. As I’d not closely reviewed the tax transcript from the IRS before handing it over, I did not know how much detail was included. Hopefully they will reinstate her grants
AGI is adjusted gross income.
Rollover from a qualified plan to a traditional IRA does NOT increase your FAFSA EFC, so the school does need to undo the correction.
See http://www.marquette.edu/mucentral/financialaid/resources-verification-ira-rollover-1415.shtml
I’m surprise that FAFSA / IRS DRT still have not fix this problem.
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Previously our EFC was under $5k (our gross income last year was under $70K),
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That income sounds too high for an EFC under $5k. Do you have more than one child in college?
Our tax return shows an AGI of just under $63k. We have one child, but we did have a lot of medical expenses last year, maybe that makes a difference. Our previous EFC was something like 04860.