Think twice if you’re paying for college

October 2010

The list of reasons not to convert IRA funds to a Roth IRA continues to grow. We’ve just figured out that Roth Conversions adversely impact college financial aid.

If you have a student in college, you’ve probably completed the Free Application for Federal Student Aid form to determine your eligibility for financial aid. While the form doesn’t count the value of your home or retirement accounts, it does count income — and if you convert your IRA to a Roth, the money you convert counts as income on your FAFSA that year. That, in turn, might reduce your eligibility for aid. Sure, you might be able to explain the circumstances to the school; good luck with that.

So add reduced financial aid eligibility to the large (and growing) list of problems with Roth IRA conversions.