Last year, I thought I would make more money than I did, so I put money into a Roth IRA. Then, I had some medical problems and needed the money. So, I withdrew my contributions. Now, the FAFSA has me reporting line 15a - 15b, which is the amount I contributed this year… but, I withdrew that because I needed the money. It’s not like it is additional income to me… I have paid taxes on that money.
And, the FAFSA asks about 1040 line 50. My line 50 for education credits shows as 0. That has me confused, because I know I got the American Opportunity Credit, as shown as line 68.
If the Roth IRA income is taxable then it would be listed on your tax return and when you import your tax return information to the FAFSA with the IRS retrieval tool it will transfer that over to the right field in the FAFSA I would think.
The question you are asking about education credit. I think it’s because of you being independent for taxes. Did you have any taxable income? If you didn’t have any taxable income left after standard deduction and personal exemption then you would only be able to get the refundable part of AOTC. The nonrefundable part of the AOTC reduces your tax.
The nonrefundable part of AOTC is on line 50. If it’s 0 you list 0.
Contributions to a Roth IRA are made with after-tax dollars. So, in 2015, I used my after-tax dollars to contribute to the account… but, then I had to withdraw that money shortly after. Fortunately, you don’t get taxed or penalized for taking out your contributions; only when you take out more than you have contributed to the IRA. However, the FAFSA considers this as untaxed income, it seems… which doesn’t make sense! (I simply did what the FAFSA said, line 15a - 15b, which for me was the amount I withdrew - 0 taxes paid on the funds withdrawn). But, again, this account was contributed with after-tax dollars, not pre-tax dollars (i.e. not a Traditional IRA which reduces your AGI).
There are some income forms that are not listed on tax return and not taxable for federal tax purposes, but FAFSA deems them available to be spent and adds them to total available income.
Examples are child support received, 401k contributions made, and it appears Roth IRA withdrawals are one of them.