Hello,
I’m trying to file FAFSA and ran into a problem. In 2017 we had to recharacterize funds from traditional IRA to Roth. Is that considered a rollover in answering FAFSA question “Did the untaxed portions of IRA distributionss include rollover?”?
If the answer is yes, what do I put in the next field “Enter the rollover amount reported for untaxed portions of IRA distributions for 2017” if the numbers from our 1040 in line 15a $20000 and 15b $2000?
Thank you.
It sounds like you did a conversion from a Traditional IRA to a Roth…is that correct?
If so, I believe that is NOT considered a rollover because you didn’t put the money into another tax exempt account…which is what a rollover is.
This is income for you, I believe…and I believe you had some tax liability as well that year…right?
But @BelknapPoint will hopefully respond…and tell me if I’m wrong…or right!
Yes, the amount from line 15b is added to our AGI and taxes were paid on it.
I just worry that the whole amount from line 15a will be considered as available income for financial aid purposes.
Thank you for your answer.
Your need based financial aid is based on your total income…and assets and it doesn’t increase by dollar for dollar if your income goes up.
Did you run a net price calculator on the college websites? That should give you a decent estimate of net costs for colleges.
If you are self employed, or own real estate other than your primary residence…or are divorced…the net price calculators might not be accurate…but otherwise…use them.
I don’t have any idea what line 15a is! Are you saying that is money you moved from a traditional IRA to a Roth?
@BelknapPoint what’s the difference between 15a and 15b?
We can all learn!
I did run net price calculators, but without considering the recharacterization. I read here on CC about people having problems not specifying rollovers properly in FAFSA and having problems later, so I don’t want to make similar mistake.
We are not self-employed or divorced, do not own rentals.
Line 15a is indeed the amount transferred from traditional to Roth, line 15b is the taxable portion of 15a.
I’m hoping @BelknapPoint can explain.
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You’ve created what’s known as a “backdoor” Roth IRA. When you did the conversion, you paid taxes on the traditional IRA contributions that were previously excluded from income tax; this amount was reported on your 1040 line 15.b. ($2,000 in your case as reported above). In my opinion, you will answer “yes” to the question asking if the untaxed portions of IRA distributions include a rollover, and the amount you will enter for the rollover amount reported for untaxed portions of IRA distributions for 2017 will be the difference between line 15.a. and line 15.b. of the 1040, or $18,000 based on your numbers above.
Thanks @BelknapPoint for that explanation!
So to the OP…just make sure you indicate this on the FAFSA form…and I believe there is a little box to check…and that is often what is missed.
Thank you both very much for your answers! You are an invaluable resource!