Hi, sorry if this has been covered, but I have read a lot of posts, and am getting more and more confused. I have been reading about IRA Rollovers then counting against families’ financial aid, as it raises their EFC.
My husband is changing jobs. He has retirement contributions at his job. He is 55. From what I can tell, when he leaves his job, he wants to do either a “Direct Rollover” or a “Trustee to Trustee Transfer” - neither of those would show up and count against us in our EFC, correct? The 60-Day Rollovers, where the funds are distributed to you first, then deposited by you into an IRA, does count against you/your award. Is this correct? We cannot afford for this rollover to change our EFC. Thank you so much!!!
Either way it is not counted as taxable income, but the second way, when it is distributed to you, you’ll get a 1099 or other tax statement and you’ll have to report it and then explain it and ask the school(s) to override it.
It really is much less messy and less risky (lots of people slip up and hold the money for more than 60 days) if he has the money moved straight from the 401k to the new IRA. He should be thinking now about where he wants the money to go (maybe into a different division of the organization that handles the 401k), so that the paperwork can be ready when he leaves the job.
No matter how you do the rollover, the IRS DRT will show it as income and bump up your EFC, happened to me this spring, artificially doubling my EFC. If possible contact your FA office as soon as possible, get started on the paperwork they will need. Couldn’t do my DRT as quickly as I wanted, been dealing with appeal process since May. Keep signed and dated forms to show proof it was a direct rollover. I had a 1099R and also form 5498, also needed W-2’s, it was Catch-22, have to use DRT, but it’s conflicting EFC kicks you into the appeal process. You would think FAFSA and IRS could correct this glitch easily. Good luck.
The IRA roller over is not seen as such when you use the IRS Data Retrieval tool. BUT you contact the financial aid office with the proper documentation, and they can make the adjustment. This is a well known issue. It should not raise your EFC to do a direct rollover once the school makes the adjustment.