Do FAFSA applications require reporting 401k loans and Roth IRA withdrawals as income?

Great question! For FAFSA purposes: - 401k loans are NOT reported as income. Since you're borrowing your own money and repaying it, the Department of Education doesn't consider this as income for your SAI (Student Aid Index) calculation. - For Roth IRA withdrawals, it depends. If you withdrew only contributions (not earnings) from a Roth IRA that you've had for more than 5 years, those withdrawals are generally NOT reported as income on FAFSA. However, if you withdrew any earnings, those earnings may need to be reported. Remember that FAFSA now uses prior-prior year tax information, so they'll be looking at your 2023 tax return for the 2025-2026 application.

i think 401k loans count as income bc you got money? my brother did this and his kids got less aid. IRA stuff definitely counts, my financial advisor told me never touch retirement if you have kids in college

Just went through this exact situation last year! The 401k loan is NOT counted as income on FAFSA. However, when I took money from my Roth IRA, I had to be careful. The financial aid office asked for additional documentation during verification to prove it was just contributions I withdrew (which aren't counted) and not earnings (which would count). Make sure you have statements showing your contribution history ready if they flag you for verification.

I'm dealing with a similar situation with my retirement accounts. What I've learned is that the FAFSA primarily uses your tax return information. If your 401k loan and Roth IRA withdrawal didn't show up as taxable income on your tax return, then you generally don't report them on FAFSA. For Roth IRAs specifically, qualified distributions aren't taxable so they shouldn't impact your SAI calculation.

Be SUPER careful with this! The financial aid office at my son's college claimed our 401k loan counted as "untaxed income" even though it wasn't on our tax return, and they reduced his aid package by almost $4,000!!! We had to fight for weeks to get it fixed. The rules say one thing but the individual schools can interpret differently. I spent HOURS trying to reach someone at Federal Student Aid to get clarification and kept getting disconnected or sitting on hold forever.

Let me clear up some confusion here with the official guidelines: 1. 401k loans: These are NOT reported as income on FAFSA because they are loans you're repaying, not income. They don't appear on your tax return as income either. 2. Roth IRA withdrawals: - Withdrawal of contributions: NOT counted as income for FAFSA - Withdrawal of earnings: Only counted if they appear as taxable income on your tax return The key thing to understand is that FAFSA is primarily looking at what's reported on your tax return. If something doesn't show up there as income, it generally won't affect your SAI calculation. One exception: some schools may ask for additional information on their institutional aid forms (like the CSS Profile) that goes beyond what FAFSA requires.

wait i'm confused...isn't there a question on FAFSA that specifically asks about untaxed income?? wouldn't a 401k loan count for that since you got money that wasn't taxed? the whole system is rigged anyway, they say middle class families get help but my family makes 95k and we got NOTHING for my brother's college 🙄

Thanks for all the helpful responses! Just to confirm what I'm understanding: neither my 401k loan nor my Roth IRA withdrawal (since it was just contributions) need to be reported as income on the FAFSA since neither showed up as taxable income on my tax return. I'll keep documentation ready in case we get selected for verification, but it sounds like I've been worrying unnecessarily. This definitely helps me feel more confident about completing my daughter's FAFSA application correctly!

That's exactly right! You've got a good understanding of the rules now. Since neither transaction appears as taxable income on your tax return, you don't need to report them on FAFSA. One small tip for peace of mind: when you submit your FAFSA, make a note in your records about these transactions and keep your documentation handy (401k loan agreement, Roth IRA statements showing contribution history). That way if you do get selected for verification, you'll have everything ready to go and can quickly resolve any questions. Good luck with your daughter's financial aid application! The new FAFSA system can definitely be confusing, but you're handling it correctly.