Roth IRA conversion: will it affect your EFC?

[jtennis]

<p>Does anyone know offhand if converting a traditional IRA to a Roth IRA changes your EFC? Does the conversion amount count as income on your tax return for that year, thus appearing to be a boost to your family's resources? Thanks for your input!</p>

[vballmom]

<p>Maybe, yes, and maybe :)</p>

<p>Schools can use professional judgment in how they deal with Roth conversion. It will increase your AGI in the year the conversion is done, but some schools might be willing to adjust for it. You’d need to contact the schools directly to be sure.</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>[Student</a> Eligibility](<a href=“http://csassoftware.com/chapter9.htm]Student”>http://csassoftware.com/chapter9.htm)</p>

[archiemom]

<p>H & I both converted IRAs to Roths for our 2007 tax returns. It did effect our EFC (substantially) and I did call S1’s school and inquire. Since even without the conversion S1 would not have had an EFC low enough to qualify for Pell, the school was not interested in entertaining special circumstances.</p>