How Do We Verify Rollovers of IRA, Pension, and Annuity Distributions?

The school is not required to confirm or verify the Individual Retirement Account (IRA, or Individual Retirement Arrangement), pension, or annuity rollover amount unless a rollover amount is reported on the FAFSA and the applicant is selected for federal verification. The rollover amount is not federal tax information (FTI) included in the FUTURE Act Direct Data Exchange (FA-DDX) process; therefore, it is manually entered on the FAFSA by the tax filer and will appear in the Manually Entered Financial Information section of the Institutional Student Information Record (ISIR) for that individual.

Unlike the rollover amount, the IRA, pension, and annuity distribution (withdrawal) amounts are FTI retrieved via the FA-DDX, so they are automatically considered verified if there are amounts in the FTI Module (FTI-M) section of the ISIR for the tax filer. If so, no additional documentation is required to verify the IRA, pension, and/or annuity distribution amounts, but any rollover amounts will still need to be verified because they are manually entered.

For the 2022 tax year, the untaxed portion of IRA distributions is reported on 1040 lines 4a minus 4b, and the untaxed portion of pension and annuity distributions are reported on 1040 lines 5a minus 5b. Sometimes, these amounts are "rolled over" into another qualified IRA, pension, or annuity plan, so these rollover amounts are not actually received as untaxed income. The rollover amount is verified and subtracted from the untaxed IRA, pension, and annuity distribution amounts, as applicable. The rollover amount cannot be a negative number. Refer to NASFAA's Verification Data and Federal Tax Forms Comparison for which line items to use during verification.

According to the September 19, 2023 Federal Register and the U.S. Department of Education's (ED’s) Program Integrity Q&A VI-Q4/A4, the school should verify the rollover amount with either:

• A signed and dated written statement from the tax filer confirming the IRS-authorized rollover amount;
• A copy of the Tax Return Transcript or alternative tax transcript with the word “rollover” handwritten or typed next to the applicable line items; or
• A signed and dated copy of the 1040 tax return that was filed with the IRS with the word “rollover” handwritten or typed next to the applicable line items.

If the school accepts a rollover on the tax transcript, the notation must be signed and dated by the tax filer. NASFAA has confirmed with ED that, if a signed copy of the tax return is used to verify the rollover amount, it does not need to be signed and dated twice.

NASFAA has asked ED to confirm whether the following could be used to verify the rollover amount:

• IRS Form 1099-R, by subtracting box 2a from box 1 and treating the difference as a rollover if there is a code “G” or “H” in box 7; or
• IRS Form 5498, using the rollover amount in box 2.

ED declined to answer and referred us to the IRS. We asked the IRS but have not yet received an answer. We believe both might be acceptable, but we too are not tax experts, so we can only inform schools to follow ED's guidance for verifying these amounts. If/When we receive confirmation from the IRS, we will update this Q&A.

Institutional Verification and/or Conflicting Information: If the individual is selected for institutional verification, or if there is conflicting information, the school decides what it deems to be acceptable documentation of the rollover amount. This can include a signed copy of the tax return with "rollover" indicated next to the IRA or pension/annuity line items. We are still uncertain whether a 1099-R or 5498 would be acceptable for institutional verification.