See the FAFSA instructions at http://www.fafsa.ed.gov/fotw1314/pdf/PdfFafsa12-13.pdf
Parents' deducted IRA (and 401(k)) contributions are counted as untaxed income (line 92b), and taxed and untaxed income are both counted as your income for financial aid purposes. Thus contributing to an IRA will not reduce your Expected Family Contribution. In fact, for a deductible IRA, it will increase your Expected Family Contribution because it reduces your income taxes, but this may still be a good deal because it also gives you money back on your taxes.
However, you are supposed to report assets as of the date you file the form. If you make the IRA contribution (traditional or Roth) by writing a check or selling some other investment before you file the FAFSA, then your assets will decrease (IRAs are not counted as assets) and thus your Expected Family Contribution will decrease.
pindella wrote:And the second question, if I decide to convert a Traditional IRA to a Roth IRA after filling FASFA, are there any fees for conversion?
Whether there is a fee for conversion depends on whether your IRA custodian charges one; most don't. If you deducted the traditional IRA contribution, you will owe tax on the conversion to a Roth IRA. If you didn't deduct the contribution, you will only owe tax on the gain.
However, if you convert, the non-taxable portion of the conversion is still considered non-taxable income in 2013 (line 92e), so it will affect next year's Expected Family Contribution if your daughter is still in college. If your income is low enough that you are eligible for a Roth IRA, you should contribute directly to a Roth IRA before you file the FAFSA. If you aren't eligible for a Roth IRA but are eligible for financial aid, it's probably better to open a Traditional IRA and wait to convert until January of your daughter's junior year when it will no longer affect the FAFSA.