<p>I am hoping people can share their experiences with how colleges treat 529 savings that are held by "Uncle Joe" or "Grandad". Both these people have saved money for my dd, but from the research I have done so far, the money will get treated not as a parent asset (5.6% assessment) but as student income (100% assessment.)</p>
<p>If the account is treated as student income and just reduces financial aid dollar for dollar, I think Uncle Joe and Grandad should change the beneficiary to another niece/grand daughter (for example one who is full pay where it would make a difference) or save it for dd's grad school costs. It doesn't seem like it will actually help us afford school at all.</p>
<p>Any thoughts?</p>
<p>If I understand it correctly, the grandparents 529 is not counted as asset, but the distribution of it is counted as the student income. So, one strategy you might be able to use is, to wait until later years of college to take out the money for paying for student college. For example, if the 529 has enough to pay for 1 year of college, wait until senior year to take out the money and pay for college. The financial aid should not be effected by the distribution because the student will not be applying for financial aid after his last year (except for maybe if he goes to grad school).</p>
<p>The way it works is that the distribution from Uncle Joe’s 529 is reported by the student as other money received. Only the money received in that particular year is reported. It doesn’t reduce the aid dollar for dollar … check a finaid calculator to see the effect of various distribution amounts on the EFC.</p>
<p>I will be honest, though … unless the school meets 100% of need, which is the exception rather than the rule, it is not going to necessarily reduce aid. So many schools gap that there is no way to say it would affect the awards negatively.</p>
<p>I don’t know kelsmom. If the school gaps, and the student gets several 10s of thousands from someone else 529s, I am inclined to think the school formula will take that into account and gaps you even more the next year.</p>
<p>It all depends on how much 529 money is distributed and what the gap is. If someone is getting 10’s of thousands in 529 distributions, she doesn’t “need” need based aid. That is money that is gifted to her … not money that came from the family’s current income or savings. It is treated differently because that money did not set the family back in any way.</p>
<p>From what I read, the rule is very clear. The 529 distributions will count as student income and 20% of it will go towards EFC. If a student gets 10s of thousands from relative 529 distribution, the EFC will simply jump proportionally. Not sure what you mean by what she needs or doesn’t need. I think we are trying to find ways to maximize aid within the parameters of the rule.</p>
<p>The family’s income and assets are protected. Money that is gifted is not protected. That’s the way it is. It is money available to the student to be used, and it doesn’t need to be protected because the entire intent of the gift is to pay for school. </p>
<p>The bottom line is, if you want to game the system … I mean, maximize aid within the parameters of the rule … don’t take the distribution. Of course, that is money you then will not have - and likely will not be given to you by a college in the form of grants.</p>
<p>But you can take distribution on the last year of college and it will not at all affect the financial aid because the student will be out of school the next year.</p>
<p>Should Uncle Joe or Grandad change the ownership of the 529 to the parent? Then the 529 balance would only count as parents assets (5.6%)? What if the funds would cover more than one year of school, but not the full costs? And which is better to “use up” first - parent 529 funds or grandparent 529 funds, assuming there will still be some need and expected gaps?</p>
<p>I don’t think you can transfer ownership of the account, just the beneficiary to another family member.</p>
<p>I’ve been told I will need to ask each college how they would treat the disbursements and that it would vary.</p>
<p>The “uncle Joe” in question set up the account when money was good and they were childless. Since then their income has gone down considerably and they had a child, I understand the amount available is about 10k a year, which I would dearly appreciate because my dd could then afford to choose a private lac over our instate public. But if schools reduce need aid by the same amount as the disbursement, I would much prefer they transfer the beneficiary to their daughter who is 5 years old.</p>
<p>You can add up the 10k a year and take it all in the last year, if that is more than last year tuition, then transfer the rest to their daughter. Otherwise, taking 10k a year will affect the following year EFC, and probably the following year financial aid. You can use some of the EFC or financial aid calculators of some of the schools you are interested in and see the ball park difference in aid for taking 10k a year.</p>
<p>Thanks ttparent. I think bunching the gift makes sense… I am planning to call the top choices and see what their fin aid offices say. If the gift could replace unsub loans in the package or part of the student work contribution, that’s great.</p>
<p>Is my dd the only one to have such a nice Uncle Joe? I’d love to know what other people have done.</p>
<p>Waited to receive the gift (grandparent 529) until the child’s last year of college.</p>
<p>You can use it for 2nd semester of junior year, as long as the distribution happens after January 1st. You don’t have to wait until senior year.</p>
<p>Thanks for the responses. </p>
<p>I really appreciate the Aunt and Uncle saving this money for my dd and they do truly want her to have it, but if it doesn’t make a difference in where she can go (like top choice LAC instead of public university that she isn’t excited about) then I think they should rollover the money to a different beneficiary.</p>
<p>I’ve requested that the grandparents postpone any 529 withdrawals until my D’s later college year(s). I actually went further and used some of D’s college savings (non-529) and funded my older S’s last year in school and asked that Grandpa change the beneficiary on his 529 plan from S to D to delay even further the withdrawal of the Grandparents 529. It is my belief that a withdrawal from a grandparents 529 would increase my EFC.</p>