My husband withdrew $38k during 2019 which was included as income on our 2020 taxes. He is of age so no penalty. He retired this year reducing our income significantly. How will this affect financial aid esp at a university that meets full need? That 2019 tax form doesn’t show a complete financial picture.
Thanks.
Please clarify – a traditional IRA withdrawal in 2019 would be reported as income on 2019 taxes most likely filed in 2020, and would be used to calculate need-based aid for the 2021-2022 academic year, which just started. An income reduction this year will affect need-based aid for the 2023-2024 academic year. The degree of change in need-based aid will depend in large part on how much of a reduction in income there is. You can always tell the financial aid office how the retirement has had an immediate impact on your family’s financial situation that may not be readily apparent when using the prior-prior year lookback.
If the annual income in retirement is significantly lower, you can request a special circumstances review, asking that the income be adjusted to actual. Whether or not that change translates to additional aid depends on the school & the income. If the income in retirement is essentially the same, just coming from a different source (pension, IRA, 401k, social security), there is no reason to request a review, because income is income for financial aid.