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How a Roth IRA Affects Financial Aid


I had NO clue that distributions from Roth IRAs are used on your FAFSA and can affect your ability for need-based aid. But they do! Let me repeat that. ..Distributions from Roth IRAs are used in your FAFSA as a way to determine how much your Expected Family Contribution (EFC) is. Thus, if you have a Roth and thought you could pull from it, tax free, well you'd be right... BUT, that doesn't mean this is a good idea. Not if you think you can get need based aid. In fact, when I was researching the benefits of the Roth for my book, 21 Reasons You NEED A Roth IRA I was thinking the Roth would be a wonderful account to use for college funding. Well it CAN be but you've got to tread carefully here. The Fafsa form is about 2 years behind. Thus, here it is 2018 and we have to show our 2016 tax forms to the colleges my daughter is thinking of attending. So, what we did in 2016 is what matters, even though it's not 2018. So, if you took distributions from your Roth THIS YEAR, 2018, in order to pay for your kid's freshman year, those distributions would show up on the FAFSA you fill out when your kid is a Junior and hoping to get aid. Remember the two year lag. You want to look as poor as possible in the Junior Year of high school before, PLUS the next 3 years too. Hopefully that will allow you to get financial aid. Now when your kid enrolls in school as a junior, well, at that point start taking distributions from your Roth because what you do in that year financially won't be considered. The 2 year lag. Lots of things to consider, indeed. College isn't cheap either. So, make sure you plan this out. You really don't want your graduating child to start the workforce saddled with 6 figures in debt. That's not a good start. ================================= If you like what you see, a thumbs up helps A LOT. So, give me a thumbs up, please! Don't forget to SUBSCRIBE by clicking here: GET MY BOOK: Strategic Money Planning: 8 Easy Ways To Put Your House In Order It's FREE if you're a Kindle Unlimited Subscriber! GET ALL MY LATEST BLOGPOSTS: PODCAST: LET'S SOCIALIZE! Facebook: Linkedin: Quora: Google +: ...(read more)


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