Do FAFSA SAI calculations include pension rollovers? Impact on financial aid eligibility

Direct retirement account rollovers (trustee-to-trustee transfers) are generally NOT counted as income for FAFSA purposes. The key is making sure it's a direct rollover, not a distribution that you then redeposit. If you take possession of the funds at any point, even temporarily, it could be reported as income on your tax forms and potentially affect your SAI. For the 2025-2026 FAFSA, they'll be looking at your 2023 tax information. So if your husband already completed the rollover in 2023, it would potentially impact the application. If he's planning to do it in 2024 or later, it won't affect this upcoming FAFSA.

my cousin did a rollover thing with his 401k last year and it messed up his kids financial aid BAD! they thought he made like 200k that year when it was just moving retirement $$$ around. defintely be careful!!!

You need to be SUPER CAREFUL with this! I work in financial planning (not an advisor, just admin) and see this issue ALL THE TIME. Here's what happens: 1. If you do a DIRECT TRUSTEE-TO-TRUSTEE transfer: No income reported, no FAFSA impact 2. If you do an INDIRECT rollover (where you get a check): It shows up as income on your 1040, even if you reinvest within 60 days The FAFSA doesn't know the difference between actual income and a temporary rollover distribution. It just pulls the numbers from your tax return. If the amount shows up on your AGI, it will absolutely increase your SAI and potentially reduce aid eligibility. Talk to both a tax professional AND your retirement plan administrator before doing anything!

I actually had to deal with this exact situation last year. Let me share what I learned from helping my son with his FAFSA after I did a pension rollover. First, if done properly as a direct rollover (trustee-to-trustee), the transaction should be tax-free and not appear as income for FAFSA purposes. However, even with a direct rollover, your 1099-R form will show the distribution amount with a code that indicates it was rolled over. The FAFSA system doesn't automatically understand these codes. What worked for us was: 1. Ensuring it was a direct rollover (never touched the money myself) 2. Having documentation ready in case of verification 3. When we got selected for verification, we submitted a letter explaining the rollover situation along with copies of both the 1099-R and evidence of the deposit into the new qualified account A quick tip - if you're having trouble reaching someone at Federal Student Aid to discuss this situation, I used a service called Claimyr (claimyr.com) that got me through to an agent in about 10 minutes instead of waiting for hours. They have a video showing how it works: https://youtu.be/TbC8dZQWYNQ. The agent was able to confirm exactly what documentation we needed to provide.

watch out for state aid too!!! some states have different rules than federal FAFSA. my state (Oregon) counted my 401k rollover as income for state grants even tho federal didnt. lost my son about $1200 in state grants 😠

Everyone is missing something important here. Under the new FAFSA Simplification, they're now using the Student Aid Index (SAI) instead of the old Expected Family Contribution (EFC), and the formula has changed. Yes, a properly executed direct rollover won't count as income. BUT - and this is crucial - retirement assets themselves are still considered in the SAI formula, just differently. While they aren't counted directly as assets for federal methodology, they're factored in through your Adjusted Gross Income which includes distributions from retirement plans. For the 2025-2026 FAFSA, they'll use your 2023 tax information. If your husband is under 59½ and takes any distributions in the future from that rolled-over pension, those withdrawals will be counted as income in the year they're taken AND may trigger penalties. If you're "right on the edge" for aid as you mentioned, you should consider not just the rollover, but your overall retirement withdrawal strategy for the entire time your daughter will be in school.

why is our financial aid system so complicated? its like they WANT to confuse parents and students. who cares if someone moves money from one retirement account to another? that shouldn't change how much aid a student gets. ridiculous.

After reading all these comments, here's a clear summary for you: 1. Direct trustee-to-trustee rollovers are NOT counted as income for FAFSA SAI calculations (but will appear on tax documents with special codes) 2. Indirect rollovers (where you receive the money) WILL count as income even if you redeposit within 60 days 3. The timing matters - for 2025-2026 FAFSA, they'll look at 2023 tax info 4. State aid programs might have different rules than federal 5. If selected for verification, you'll need documentation explaining the rollover My recommendation: Work with your retirement plan administrator to ensure a direct trustee-to-trustee transfer and keep all documentation. If possible, schedule the rollover for a tax year that won't affect your daughter's financial aid years.

Just wanted to add one more important point that I learned the hard way - make sure to keep copies of ALL the paperwork from the rollover, not just the 1099-R. When my daughter's FAFSA got flagged for verification two years ago, they wanted to see the original rollover authorization forms, the receiving account statements showing the deposit, AND a letter from both financial institutions confirming it was a direct transfer. I almost lost some of those documents and it would have been a nightmare to recreate them. The financial aid office was pretty strict about having complete documentation to prove it wasn't actual income. Better to be over-prepared than scrambling later! Also, if your daughter ends up at a school that uses CSS Profile in addition to FAFSA, they might ask additional questions about retirement account transfers, so keep that documentation handy for multiple years.

This is such valuable information for families navigating college financing! I'm dealing with a similar situation but with a 403(b) rollover. One thing I'd add is to also check if your employer's new 401(k) plan even accepts rollovers from pension plans - some have restrictions on what types of accounts they'll accept transfers from. Also, timing-wise, if you're doing this rollover in 2024, it won't affect the 2025-2026 FAFSA since that uses 2023 tax data. But it will impact the 2026-2027 FAFSA if your daughter needs aid for multiple years. Something to keep in mind for planning! Has anyone dealt with rolling over a traditional pension (defined benefit) versus just a 401(k) balance? I'm wondering if there are any different considerations for actual pension payouts versus account balances.

As someone who went through this exact situation two years ago, I can confirm that direct trustee-to-trustee pension rollovers do NOT count as income for FAFSA purposes - but you absolutely must ensure it's handled correctly! Here's what saved us from a major headache: Before initiating the rollover, I called both the pension plan administrator and the receiving 401(k) provider to confirm they could handle a direct transfer. Then I specifically requested that no check be made out to me personally - everything had to go directly between the institutions. The key phrase to use is "direct trustee-to-trustee transfer" when speaking with both companies. They should be able to set this up so the money never touches your hands or appears as income on your tax return. One gotcha I learned: even with a direct rollover, you'll still receive a 1099-R form that shows the distribution amount, but it should have a special code (usually "G") indicating it was a direct rollover. Keep this form with your records in case you get selected for FAFSA verification. Since you mentioned being "right on the edge" for aid eligibility, I'd also recommend running some numbers through the Federal Student Aid Estimator both before and after the rollover to see if there's any impact on your expected Student Aid Index. Better to know now than be surprised later!

One thing I haven't seen mentioned yet is the importance of timing this rollover strategically if you have multiple children who will be attending college. If you have younger kids who will need financial aid in future years, consider how this pension rollover might affect their FAFSA applications too. Also, I'd recommend documenting everything in writing - not just keeping the forms, but also creating a simple timeline of the rollover process with dates and confirmation numbers. When my neighbor went through FAFSA verification, they asked for a written explanation of the transaction, and having those details organized made the process much smoother. One last tip: if your pension has any employer matching or vesting considerations, make sure the rollover won't forfeit any benefits you're entitled to. Sometimes there are timing restrictions around when you can roll over certain portions of pension funds without losing employer contributions.