Inherited IRAs (again)

Paying for College
1

I’ve searched the forum and read a bunch of the other posts, looking for some certainty around the following:

I (parent, not student) inherited an IRA from my father. The IRA and my father’s death predate the Secure Act.

I take RMDs, which I understand to be taxed as income to me.

I’m trying to confirm the following:

  1. Is it reported on the FAFSA?

and

  1. If I want to take more out to pay for S23’s college, could I? (Setting aside for the moment whether I should. Just trying to learn if I have the option.)

  2. If I use the $ for tuition, is there any consequence other than increased income reflected on the next years FAFSA? Are there penalties? Can the tuition be deducted somehow offsetting the hit from increasing income?

Thanks so much.

2

1.The RMD is reported on your FAFSA, yes.

  1. You asked about tuition deductions…I don’t know of any tuition deductions. But you could be eligible for the tuition tax credit.

@BelknapPoint your thoughts?

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3

Yes the RMD is reported, but the full value of the inherited IRA is not?

And yes, I meant tuition tax credits or deduction for higher ed expenses.

Thank you!

4

You can always take out more than the RMD; you could drain the entire account today if you wanted. As you noted, you will pay income tax on the amount of the distribution.

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5

The government wants you to take out as much as possible because they would prefer getting that tax revenue sooner than later.

That’s why they have RMDs in the first place and eliminated the stretch IRA for many people.