It would be great if they could FIX this so it’s not so darn hard to find!!
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Exactly! For njwrestlingmom and others like her who know and remember they had a rollover, if they can’t find this box, they can’t use DRT so will have to manually enter their tax return info. Shouldn’t be so hard!
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It would indeed be good if the FAFSA form clearly stated that that this checkbox (or radio buttons as I can’t remember how it looked exactly) is not filled by the IRS DRT.
It would be even better if the IRS could update IRS Form 1040 so that the IRS DRT could fetch all the needed information automatically.
I assume that the IRS DRT calculates the untaxed portions of IRA distributions and pensions by fetching lines 4a, 4b, 5a and 5b from IRS Form 1040 and then computing (lines 4a + 5a) minus (lines 4b + 5b) as described in the FAFSA paper form.
As described in the FAFSA paper form, one needs to exclude rollovers, but the rollover amounts are not properly tagged as such on IRS Form 1040. So, the FAFSA form needs to ask the user to provide the rollover amount(s). I assume that the question is only asked if (lines 4a + 5a) minus (lines 4b + 5b) is non-zero because the answer to the question can only be No otherwise. I also assume that the IRS DRT would flag that something is wrong if the user enters rollover amount(s) that are more than what the IRS DRT computed for the untaxed portions of IRA distributions and pensions.
By the way I also assume that entering rollover amount(s) is likely to increase scrutiny from colleges and that they might want to be given proof later on that the rollover amount(s) are indeed true. Random examples of letters requiring such proof include 2021-2022IRAPENSIONROLLOVER03252021.pdf (famu.edu) and 2324 IRA, Pension, Annuity Rollover Statement (nd.edu)
There is another thing that could be improved on form 1040: a way for the IRS DRT to automatically get answers to FAFSA questions 83 and 84: “How much did Parent 1/2 (father/mother/stepparent) earn from working in 2021?” if parents are married filing jointly. Currently, wages of both parents are added together on IRS Form 1040 line 1. So the IRS DRT asks that one manually gets the info from such places as the W-2 forms. I assume that it then checks that the sum of the answers to questions 83 and 84 is in line with the numbers from IRS 1040 line 1, but it’s fairly complicated because according to the FASA paper form it’s in fact not just line 1 (or IRS Form 1040-NR line 1a) but also Schedule 1 lines 3 + 6 and Schedule K-1 (IRS Form 1065) Box 14 (Code A)…
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Could that be the question? If I enter past it, I get asked how much we have in the bank, so I wouldn’t think it would be after that set of questions??
I don’t think that’s it…that asking about contributions you made to tax deferred retirement plans…those contributions are added back in as income.
Not the same as a rollover.
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I didn’t see anything else that could be it! I guess I’ll keep going tomorrow when I’m ready to submit and if I don’t see it, will try to back it all out! This is crazy!
I found the information regarding how rollovers are handled on the FSA Partners website. It says:
- Rollovers: If an amount greater than $0 is transferred from the IRS into the Untaxed Portions of IRA Distributions field or the Untaxed Portions of Pensions field in the FAFSA form, the applicant or parent will be required to answer a new question about whether or not that amount includes a rollover. If the applicant or parent answers “yes,” he/she will be required to provide the amount of the rollover in a new entry field. Our system will then subtract the user-reported rollover amount from the amount of the IRA or Pension distribution that was transferred from the IRS, and the result will be used in the calculation of the applicant’s expected family contribution (EFC).
I take that to mean that the system looks for an entry in 4a or 5a on the 1040, then subtracts 4b/5b. If the amount is greater than 0, the system does not capture the amount on the FAFSA … instead, it prompts the parent to answer a question about rollovers and provide the untaxed amount themselves. I can confirm that if 4a-4b=0, there is no question about rollovers (I tried it by doing a FAFSA for myself -I had a rollover that was 100% taxed). My question to @NJWrestlingmom is: Is line 4b on your tax return greater than 0? If so, you should be asked about rollovers after you transfer your tax information into the FAFSA (but I believe before you get questions about untaxed income).
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Interesting….the printed taxes (1040) I have don’t have anything in 4a or 4b. But I have the form from Fidelity with the rollover amount. So does this mean my husband didn’t include it correctly on our taxes??? Oy. So glad this is my last kid!
Possibly. Your rollover should have been included on your taxes. I forget the form you receive, but we sure got one!
@BelknapPoint any insight here?
I definitely have the form!
If there was no reported rollover in 2021 on the tax return, that explains why you don’t get a prompt asking about the rollover. I don’t know enough about taxes to tell you that it should have been included. For FAFSA purposes, though, it’s not a factor … nothing on those lines of the tax return means nothing to report. I think I am correct in assuming that even if he should have reported it on the tax return & didn’t, if it was a direct rollover, it was probably non-taxable so wouldn’t impact your EFC.
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The answer to your question is on the second and third columns of page 26 and first column of page 27 of 2021 Instruction 1040 (irs.gov)
I must admit that I don’t see how common mortals can follow those instructions with the cascading exceptions. Imho it’s one of those things when one must to some extent trust his/her accountant or tax software to do the right thing.
In any case, I agree with @kelsmom’s conclusion that it’s not a factor for FAFSA purposes.
Could you make a picture of the page where it mentions something like “Untaxed portions of IRA distributions from IRS”? Thanks.
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I’m going to finish this tomorrow- but I don’t think I’ll see the question since it’s not on my 1040.
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You might not see the question asking if the untaxed portions of IRA distributions include rollover(s), but I think that you probably should still see the field for the untaxed portions of IRA distributions since it is on the paper form of the FAFSA and I speculate that whatever is on the paper form should show up in the online form.
There is a big PowerPoint presentation at 2022–23 FAFSA Preview Presentations (EA ID: APP-21-14) | Knowledge Center
It shows that the manual online form asks in bold to exclude rollovers from the untaxed portions of IRA distributions and pensions:
On the student equivalent form using the IRS DRT, it doesn’t mention that the rollovers are excluded:
I have in mind that years ago there was a little checkbox (or radio buttons) next to it defaulting to No asking if any of that was a rollover, but the screenshot here is probably the scenario where the amount fetched is zero.
The confusion might simply arise from the fact that when the amount fetched is non-zero, then the system prompts the user similarly to what is shown on this page, but in a sea of “Transferred from the IRS” notices, leading the user to wrongly assume that the answer to the question has also been transferred from the IRS.
The phone screenshots show the case where the amount is non-zero!
On the phone version it’s a little bit less confusing… but still not ideal imho.
(and I suppose that it has always been radio buttons on the website too and that my memory is not that good. Looking at it now it’s not as confusing as I remembered it, but certainly a clear notice that No is just the default answer rather than the correct answer would be helpful)
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I pulled up the presentations, and I am confused as to why they only show the rollover questions on the mobile presentation, and unless I missed it, only on the independent student section. I guess that was just where they chose to illustrate it? It certainly seems like you can’t miss it, at least on the mobile version. Maybe the desktop version displays the questions differently.
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