Thursday, April 22, 2010

Another facet in the Roth conversion decision

Dow Jones' Financial Advisor magazine points out another pitfall in the Roth conversion saga.  The temporary boost in taxable income will not be viewed as temporary by college financial aid offices, and so could imperil scholarships.

Some schools take into account real estate assets in their own assessment. But for those that don't, someone with a million dollar home and large 401(k) account could potentially receive more aid than a family with a higher income but far less assets.

They have an example where a Roth conversion by a parent would reduce a daughter's financial aid by $17,000. So, for those with kids in college, think twice before converting your traditional IRAs.

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