<p>What do you do with income that comes from converting a regular IRA to a Roth IRA? It is a one time event (income wise) and you never get the funds to use because they go directly from one type of IRA to another. It is not really income in the traditional sense. Does the income get reproted on the FAFSA form?</p>
<p>What income? I don't believe any income is derived from converting from traditional IRA to Roth IRA.</p>
<p>The amount that is converted from a traditional IRA to a Roth IRA is reported as income on your tax returns in the year of the conversion. I believe this is because the money in a traditional IRA is pretax money and the money in a Roth IRA is after tax money. This is the only type of IRA to IRA transfer I know of that generates an income event.</p>
<p>Anyway, this is really only a fantom income - you never really get the money, only the tax burden on the conversion. How is this treated on the FAFSA form?</p>
<p>Oh-- I see. You're right, and it does get included as income on the FAFSA. No provision for offsetting this phantom income, best I can tell. You're probably best not converting during college financial aid years, or failing that, making a Special Circumstances appeal to your college financial aid officer, along with documentation. They can use their 'Professional Judgement' to adjust the data elements to offset the phantom income:</p>
<p>"Another situation where a school might want to consider the use of professional judgment involves Roth IRAs. When someone converts a regular IRA into a Roth IRA (which is done by transferring funds), the amount converted has to be reported as taxable income on the tax return. Therefore, the income reported on the FAFSA will be higher than it would without the Roth conversion, even though the family doesn't actually have additional income or assets available. Schools can use professional judgment to reduce the income and taxes paid to the amount that would have been reported if there was no Roth conversion, if it thinks the adjustment is warranted for a particular student. Just like the specific special circumstances listed in the law, the school isn't required to make a professional judgement adjustment in this situation."</p>
<p><a href="http://www.csassoftware.com/chapter9.htm%5B/url%5D">http://www.csassoftware.com/chapter9.htm</a></p>
<p>The DOE actually addressed this in Feb '99. Check out this link...
<a href="http://www.finaid.org/educators/pj/gen-99-10.phtml%5B/url%5D">http://www.finaid.org/educators/pj/gen-99-10.phtml</a></p>