<p>Did using funds from my IRA SCREW ME? Will this reflect in my income? And then reflect in financial air award? I was dying from the interest.</p>
<p>If you withdrew pretax funds from your IRA, this will show as taxable income for the year.</p>
<p>Whether this will “screw you” depends on a lot of factors…how much was this, what is your income anyway, does this added income make you in eligible for something like a Pell Grant?</p>
<p>No way to really answer your question.</p>
<p>You do know that any proceeds from your IRA are counted as income? So, that will be added to your income. If you are a student and you are still under $6K or so, it won’t affect your financial aid. If you are a parent, it’s likely to be a big hit on your EFC. Depends on what your income was. But, yes, it will increase your income figure on the FAFSA. </p>
<p>It may have tax ramifications too. </p>
<p>Are you a parent or a student? What was your income before taking the funds out of the IRA and how much did you take out? What colleges are you considering.</p>
<p>The reason all of these things go into the consequences is that if you do not qualify for PELL or state programs, the increase in EFC may not make that much of a difference, particularly at schools that don’t tend to meet full need anyways.</p>
<p>I took out $30000 and paid 6000 in taxes.
Do not qualify for Pell
She got a salliemae loan for her tuition and housing.
As well as her subsidized and unsubsidised Fed loans.<br>
Got an EFC of approx 23300. Only slightly higher than last year.</p>
<p>She used funds in her umta fund for her freshman year but that has been exhausted.</p>
<p>If the school uses only the FAFSA, and your EFC wasn’t that much different, MAYBE there won’t beach of a change in aid. It sounds like all you had was loans. As a sophomore, your daughter will be able to get a $6500 Direct loan. Is the “sallie Mae” loan a parent plus loan? If so, that is your loan or you cosigner it…is that correct?</p>
<p>Didn’t do parent plus — still paying off her sisters
Consigned a private Sallie Mae loan for Soph year</p>
<p>Did you talk to a tax advisor before you did this? I hate to tell you this, but this was a bigger mistake than you realize. (My BIL did something similar a few years ago, and we see clients in the same situation in our tax office).</p>
<p>You have increased you income by $30,000. You will owe 10% as an early distribution penalty (that’s half the $6000 they took in taxes). If you had an EFC of $23,000 I’m assuming you are already in the 25% tax bracket - that’s another $7500 that you’ll owe. So you now are about $4500 in the hole. But it gets worse. If you have younger children, you have probably lost the Child Tax Credit for them. If you itemize (use schedule A), you AGI has gone up by $30,000 and thus the floor to count certain deductions has increased (2% floor for job related expenses, for instance, is not increased by $600). If you were paying student loan interest to keep it from compounding, you probably won’t be able to claim a deduction for it, as it phases out above a certain income level as well.</p>
<p>It sounds like you’re in the range where any increase in income results in an increase to EFC of almost 50%. I wouldn’t be surprised to see EFC rise by $10,000. I hope I’m wrong on the EFC, but be prepared for such a jump. You would have been better off paying the credit card interest. Since this was an IRA distribution, you may be able to avoid some of the 10% penalty, due to paying educational expenses, which may be of some consolation.</p>
<p>Was this maybe a Roth IRA? Of so, the consequences would be less so.</p>
<p>Agreed - a Roth IRA would be entirely different, but I wouldn’t expect such significant withholding from a Roth. At least it wasn’t a 401-K (though a Roth 401-k would probably be OK).</p>
<p>It’s still hard to say. IF the EFC is only slightly higher than the year before, what the OP is saying is that income this year was that much lower so that the $30K withdrawal less taxes paid on it just brought the OP’s income to prior years levels. A quick glance seems to indicate to me that the amount still wouldn’t make the family PELL eligible. Also if the student does not go to a school that guarantees to meet full need, it may not have mattered anyways whether the need number went up or not. </p>
<p>How much is your student’s official Cost of Attendance at the college as the college defines it? Does the school use FAFSA only? DId the student get any financial aid from the school the year before? </p>
<p>The fact of the matter is that most schools don’t meet full need so most of the time it doesn’t matter a whit whether one’s need goes down or not unless there is a state program that or PELL eligibility is involved. What one may lose is some subsidy of loans. The rest is really a crap shoot. </p>
<p>Acquaintances of ours had a financial crisis a few years ago, and their kids had to sit out college for two years. They literally could not pay with the situation at that point, but the school did not throw in a dime more even when the EFC clearly indicated it as such. The schools did not guarantee to meet full need and did not do so for most of its students. One of their kids transferred to an instate school and the other who just had one year left at her college worked for a year, and paid for the second semester with the help of the full year Stafford loans applied to one term and upped by parents getting denied PLUS, and then did the same thing the next year. Took two year to finish one after sitting out a full year and working. School threw in maybe $1000 in grant towards the cost. She was a very good student too. The money just wasn’t there at the school.</p>