Irs form 5329 qualified education expenses11/29/2023 However, that shifts once there is an amount withdrawn from IRA funds for college. When FAFSA reviews total asset information, IRA funds are excluded and don’t impact financial aid. How IRA withdrawal for education can impact financial aidĪs part of filling out the FAFSA to receive financial aid, tax returns from two years prior are used in evaluating income. Once they’re taken out, it’s not possible to pay back the funds. Unlike 401(k) loans, in which the account holder pays back the borrowed money with interest to their account, IRA withdrawals can’t be paid back. Account holder’s can’t replenish the funds.If it does, the 10% penalty will apply on the excess. The amount withdrawn must not exceed the total for qualified education costs.Tuition is paid either by semester or annually, meaning withdrawals may need to be done annually. The distribution of the IRA funds needs to happen in the same year that qualified education expenses are paid. The distribution should happen in the same year that the expenses are due.(This is because Roths are funded with after-tax dollars.) Withdrawals from Roth IRAs are not subject to income tax as long as the account holder has had the account for five years and only takes out the original contributions-and not earnings. Withdrawals from traditional IRAs are usually subject to income tax. IRA assets aren’t considered as part of the FAFSA review, but once IRA funds are withdrawn, it could have an impact on any need-based financial aid in the future. Which may impact what financial aid one qualifies for in the future.
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