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How Parents’ Retirement Assets Can Impact Financial Aid

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Whether — and to what degree — your parents’ assets, such as equity in their home, will affect your financial aid award is a complex question. The Washington Post recently posted a Q&A looking at one particular aspect of parental assets: Retirement funds. Specifically whether converting their traditional IRA to a Roth IRA could affect your chances of getting financial aid.

The answer, “It might.”

Rather non-committal, but as the article goes on to describe:

Even though IRA balances aren’t counted as assets in the federal financial-aid formula, converting a traditional IRA to a Roth could affect your financial-aid award because the money you convert will increase your taxable income for the year.

What all this means to you and your parents is that if they are planning to take advantage of the annual window to convert their traditional IRA, they should consult both with a tax advisor and your school’s financial aid office first. The FAFSA does not have a place to explain (or even make not of) a Roth IRA conversion. You can, however, talk directly to your financial aid officer and hope that they apply common sense to your parents’ income from the year of the conversion.

Just remember, with funds tighter than ever, you may not want to do anything that could give your school a reason to reduce your aid award.

Do you have a specific question about how our parents’ income and assets might affect your financial aid award? Whether you are worried about your parents’ retirement assets — or the fact that your parents have told you they won’t be paying for college, no matter what the FAFSA says — the best course of action is to give your office of financial aid a call. If you don’t already have a personal relationship with one of the financial aid officers, now is a great time to give them office a call and set up a meeting with someone in person.

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