Untaxed Portions of IRA Distributions: What They Are and Why FAFSA Cares

Untaxed portions of IRA distributions can quietly mess up your FAFSA. I found that out the hard way when helping my son apply for aid. One misstep with how I reported the untaxed portion of my IRA distribution, and we nearly lost thousands in grants.

Here’s the truth: if you’ve taken money from an IRA — and part of it wasn’t taxed — FAFSA wants to know. But figuring out exactly where to find untaxed portions of IRA distributions on your 1040 can feel like a riddle.

This guide breaks it down clearly. We’ll walk through how FAFSA defines untaxed portions of IRA distributions, how to report them correctly, and how this affects your financial aid. I’ll also show how this ties into rollover strategies and why it matters if you’re converting or moving IRA money.

Key Takeaways

Untaxed portions of IRA distributions are the difference between total IRA withdrawals and the taxable amount. FAFSA requires you to report this untaxed income, even if the IRS doesn’t tax it — and misreporting it could reduce your student’s financial aid.

What Are Untaxed Portions of IRA Distributions?

When we talk about untaxed portions of IRA distributions, we’re referring to money withdrawn from a traditional IRA that isn’t included in your taxable income for the year. Sound confusing? It was for me too — until I saw how easily the IRS and FAFSA treat them differently.

Taxable vs. Untaxed Portions — The Basics

Let’s say you made non-deductible contributions to your IRA in the past — meaning you already paid taxes on that money. When you withdraw it later, that portion of the distribution isn’t taxed again. But on your IRS Form 1040, this still gets reported.

Now here’s where things get tricky.

FAFSA doesn’t care whether that portion was taxed or not. It sees any IRA distribution not taxed on your return as untaxed income, which must be reported separately. That untaxed amount is then factored into your Student Aid Index (SAI), possibly reducing your kid’s eligibility for need-based aid.

So while the IRS sees it as “you already paid taxes,” FAFSA sees it as “income that wasn’t taxed this year.”

Example from Real Life

I had a small IRA withdrawal in 2022 — part of it was taxed, part wasn’t. When I went to fill out FAFSA, I assumed I could just skip it since I didn’t owe tax on the full amount.

Nope.

Turns out I had to include the untaxed portion of the IRA distribution under “Untaxed Income” on the FAFSA — even though the IRS didn’t treat it as income that year. That oversight almost cost us a Pell Grant.

How FAFSA Calculates It

According to the FSA Handbook 2024–2025, you report the difference between Form 1040 Line 4a (total IRA distributions) and Line 4b (taxable amount). That difference is the untaxed portion of your IRA distribution, and it’s required on the FAFSA.

Formula:
Line 4a (total IRA distributions) – Line 4b (taxable IRA income) =
Untaxed Portion of IRA Distribution

This figure includes traditional IRAs, Roth conversions, and rollovers that weren’t fully taxed. That’s why it’s critical to know how your rollovers were handled. For instance, if you used a MYGA to IRA rollover or a 529 to Roth IRA move, parts of that money may show up as untaxed distributions.

FAFSA Rules on Reporting IRA Distributions

Understanding how FAFSA handles untaxed portions of IRA distributions is not optional — it’s essential. FAFSA doesn’t just skim your tax return; it digs into the details. And if you report the wrong amount — or skip reporting untaxed IRA distributions altogether — your aid calculation could be way off.

Where FAFSA Looks on the 1040

FAFSA asks you to report untaxed portions of IRA distributions by pulling directly from IRS Form 1040, specifically:

• Line 4a: This shows your total IRA distributions
• Line 4b: This shows the taxable amount

You don’t report Line 4b to FAFSA — you calculate the difference between 4a and 4b. That difference is the untaxed portion of your IRA distribution.

Let’s say Line 4a is $20,000 and Line 4b is $15,000. The difference — $5,000 — is what FAFSA considers untaxed income. That $5,000 gets added to your Student Aid Index, even though the IRS didn’t tax it.

What FAFSA Includes as “IRA Distributions”

FAFSA includes the untaxed portions of IRA distributions whether the withdrawal came from:

• A traditional IRA
• A rollover IRA
• A Roth conversion (if not fully taxable yet)

Even if your rollover was tax-free, FAFSA still sees that untaxed IRA portion as income. That’s why understanding strategies like an HSA rollover to IRA or IRA to HSA rollover is vital — these can trigger untaxed transactions that FAFSA requires you to report.

Common FAFSA Mistakes to Avoid

1. Skipping the untaxed portion entirely because no tax was owed
2. Reporting the full distribution amount without subtracting the taxed portion
3. Confusing pension distributions with IRA withdrawals — FAFSA treats them separately (we’ll cover that in Part 3)

From my experience, the biggest mistake parents make is thinking “If the IRS didn’t tax it, FAFSA won’t count it.” That’s just not true. FAFSA treats untaxed portions of IRA distributions as real income.

Untaxed Portions of IRA Distributions vs. Pensions

It’s easy to lump everything together — IRAs, pensions, 401(k)s — especially when you’re rushing through the FAFSA. But when it comes to untaxed portions of IRA distributions, FAFSA draws a hard line between IRA accounts and pensions.

And here’s the key: the way you report untaxed portions of IRA distributions is not the same as how you report untaxed pension income.

IRS vs. FAFSA: Same Form, Different Rules

Both pensions and IRA withdrawals are listed on Form 1040 Line 4a and 4b, but FAFSA wants you to break them apart:

• IRA Distributions: You report the untaxed portion of IRA distributions in FAFSA Question 43f (for parents) or 44f (for students).
• Pension Distributions: You report untaxed portions of pensions in a separate question — FAFSA 43g or 44g.

Even if they show up on the same lines of your tax form, untaxed IRA distributions and pensions are not interchangeable in FAFSA’s eyes.

Example: Why It Matters

When I moved some money from a traditional IRA to a Roth — a backdoor conversion — part of that conversion wasn’t taxed due to basis in non-deductible contributions. That untaxed portion of the IRA distribution wasn’t obvious on my return, but FAFSA counted it as untaxed income.

Meanwhile, my small monthly pension from a previous job had its own untaxed component — but it had to be listed separately from my IRA activity.

Misreporting either of these — especially untaxed IRA distributions — can inflate your aid estimate. That could mean losing out on grants or low-interest loans.

Reporting Tips

If you rolled over funds or used strategies like an IRA to Roth conversion or advanced IRA rollover timing, double-check how much of that transaction went untaxed.

Then break it out properly: one number for untaxed portions of IRA distributions, another for pensions. FAFSA wants both.

Where to Find Untaxed Portions of IRA Distributions on Form 1040

If you’ve ever stared at your tax return wondering, “Where exactly are the untaxed portions of IRA distributions?”—you’re not alone. I’ve helped dozens of families figure this out, and it’s always the same confusion: two lines, one big FAFSA consequence.

Form 1040 Breakdown

Here’s where to look:

• Line 4a – Total IRA distributions
• Line 4b – Taxable amount of those IRA distributions

To calculate the untaxed portion of your IRA distribution, simply subtract Line 4b from Line 4a.

Example:
Line 4a: $18,000
Line 4b: $13,000
Untaxed portion of IRA distribution = $5,000

That $5,000 is what FAFSA wants. It doesn’t matter if the IRS didn’t tax it — FAFSA still considers it untaxed income.

What Makes an IRA Distribution “Untaxed”?

Some common reasons a portion of your IRA distribution might be untaxed:

• You contributed post-tax dollars in previous years
• You executed a tax-free rollover (like to a Roth IRA or MYGA)
• You took a qualified distribution from a Roth IRA with sufficient holding period

FAFSA doesn’t ask why it was untaxed — it just wants to know how much. This is why rollovers can trigger reporting requirements, even when they’re tax-free. For example, if you completed a rollover from Ally or moved funds via an FBO transfer, and part of that wasn’t taxed, you need to report that amount.

Watch for Box 7 on 1099-R

You can also reference your Form 1099-R (the form reporting retirement distributions). Box 7 tells you the distribution code:

• Code G = direct rollover (usually not taxed, but FAFSA still counts it)
• Code 7 = normal distribution
• Code T or Q = Roth distributions (may be partly untaxed)

Even if it’s a Code G rollover, and you didn’t owe tax, the untaxed portion of the IRA distribution still must be reported to FAFSA.

Untaxed Portions of IRA Distributions in Spanish Tax Returns

If you or your parents filed taxes using a Spanish-language version of IRS Form 1040 — or received guidance in Spanish — the challenge becomes translating tax labels and FAFSA’s requirements. But the untaxed portions of IRA distributions still follow the same logic, even across languages.

Key Terms to Know

In Spanish, the IRS Form 1040 still labels IRA distributions on:

• Línea 4a: Distribuciones totales de IRA
• Línea 4b: Parte tributable de la distribución de IRA

So, just like in English:

Línea 4a – Línea 4b = Porción no tributable de la distribución IRA
Translation: The untaxed portion of your IRA distribution

That result is the number you must report on the FAFSA as untaxed income.

FAFSA and Bilingual Tax Filers

FAFSA doesn’t ask which language your return is in — but it does expect accurate numbers. Whether you’re filing as a bilingual household or assisting Spanish-speaking parents, your job is to extract the untaxed portion of the IRA distribution and enter it in FAFSA’s financial section.

If you’re unsure, look at your Formulario 1099-R. The terms may vary slightly, but Box 1 (Gross distribution) and Box 2a (Taxable amount) work the same. The difference between them is the untaxed portion FAFSA is interested in.

Why It Still Matters

I’ve worked with families whose parents used Spanish-speaking tax preparers and missed this detail. They didn’t report the untaxed IRA distribution because they thought a rollover didn’t count. But if any part of that IRA withdrawal was untaxed, FAFSA needs to know.

That’s especially true for common strategies like Roth IRA conversions from TIAA or moving your Roth from TIAA to Fidelity. Even when no tax is owed, the amount must be disclosed.

Untaxed Portions of IRA Distributions 2022 & 2021

Here’s something I learned the hard way: even if you’re filing the FAFSA in 2025, you’re often looking at untaxed portions of IRA distributions from 2022 or even 2021. That’s because FAFSA uses prior-prior year tax data — meaning the tax return from two years ago.

FAFSA Filing Year vs. Tax Year

• FAFSA 2024–2025 uses your 2022 tax return
• FAFSA 2023–2024 used your 2021 tax return

So if you’re helping a student file the 2024–2025 FAFSA, you’ll need to identify the untaxed portion of IRA distributions from 2022 — not from the most recent year.

Finding the Right Amount

To report untaxed IRA distributions from 2022, grab your Form 1040 from 2022 and do the same calculation:

• Line 4a – Line 4b = Untaxed portion of IRA distributions
• Double-check with your 1099-R from 2022 to make sure you’re not missing rollover amounts or Roth conversions

Same goes for untaxed IRA distributions from 2021 if you’re correcting a FAFSA or filing for an older aid cycle. This has tripped up a lot of parents — including me — because we’re used to thinking in the current tax year.

Rollovers Still Count

Let’s say you moved funds in 2022 using a 529 to Roth IRA rollover or performed an indirect rollover. Even if the move was tax-free, FAFSA still counts the untaxed portion of the IRA distribution as income — unless it was a true qualified rollover and coded correctly on the 1099-R.

Don’t guess. Use your exact 2022 Form 1040. If needed, request a tax transcript from the IRS — it will show IRA distributions clearly.

FAQs

Conclusion

When I first stumbled over the untaxed portions of IRA distributions on my tax return, I thought, “If I didn’t pay taxes on it, it doesn’t count.”

But FAFSA disagreed — and almost cost my son a chunk of his aid.

Now I double-check every line, especially if I’ve used any rollover strategy. If you’re considering moves like an advanced IRA rollover, just remember: FAFSA sees what the IRS might overlook.

Get it right. Report it clearly. And give your family the aid shot it deserves.

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