The good news: College financial aid officers can discount the temporary income spike caused by the IRA conversion. But be sure to ask.
In 1999, the Department of Education sent a letter urging financial aid personnel to use their professional judgment and review individual cases involving transfer of funds from a traditional IRA to a Roth, Kantrowitz says.
“Schools have the authority to eliminate the impact of a Roth IRA conversion from the need analysis formula,” he says. “They’re not required to do so. But my experience is, most colleges, if asked, will do so.”