Hello! I have been reading about this & it is confusing, I want to make sure I understand correctly so if anyone knows about this I would appreciate it! Ok, I am the mom of a D who will be a college freshman this fall. My parents have a 529 plan for her. I assume it’s in their name, my mom is double checking. This yr we will use $5000 from it, which I disclosed in the CCS profile ( or FASFA can’t remember) under the part about family helping. I didn’t say it was from a 529 plan as there wasn’t a spot for it. The school knows about the $5000 from my patents & gave us $5000 less in need based aid because of it.
Now it’s time to get the $ and I read that if the 529 Plan is in the grandparents name, the school will take 50% of that amount & reduce fin aid the next yr by that amount, so we get $2500 less aid next yr as the school sees it as untaxed income. However, some schools see it as resource $ and reduce aid dollar for dollar so if her school does that, we get $5000 less aid next yr. Does all this sound right? If that last part is true, what’s the point in a 529 plan? Do many schools see it as resource $ instead of untaxed income?
Lastly, I read that we can legally transfer the plan into my daughter’s name, therefore it only effects our fin aid by 5.24% which is much better. From what I understand this is ok, all above board to do. If we quickly do that, it won’t effect our fin aid next yr by as much. I want to use proper channels to understand & reduce the chances of getting less aid, but I need to understand it correctly first! Anyone know about this? Am I understanding it correctly? Thanks & sorry for the long post!
First of all, if you can wait until spring semester of your daughter’s sophomore year until you use money from the grandparent 529, none of it will have any impact on her financial aid (assuming she finishes in four academic years and a grandparent is the actual account owner).
How a school treats a 529 account owned by a grandparent when determining how much institutional need-based aid to award will depend on school specific policies. Generally, though, the money only hurts need-based aid when it is actually spent for the student’s benefit; the fact that it’s an available asset won’t be reported. FAFSA only cares about money from such an account that has been used for the student in the base year that is in question. Again, it is not reported as an available asset. Because really, how are you supposed to know how much is available, or even that it exists, until the account owner tells you or actually makes some of the money available?
Transferring the account into the student’s name (or a parent’s name) is perfectly legal, but not all 529 plans allow for this. Whether or not this makes sense financially is based on many factors, so without knowing more information it’s difficult to provide a valid opinion.
@BelknapPoint Thanks for your detailed answer. My mom is checking to see if her state allows a transfer. If I am understanding this correctly, as I think the 529 Plan is in my parents name, when I declared the income from my parents towards her school, I should have told them it was in a 529 plan, that way they would not have w/held that amount from her fin award as it wasn’t in my name, it was assets held by my parents, correct? So should I tell the school of that mistake and have them increase the aid award?
Then, if they can transfer it into my daughter’s name b4 the check is written in a few weeks, that will cause us to just lose 5.24% instead of a higher # if it remained in my parents name, therefore benefiting us on both ends, FASFA/CCS and next yr’s fin aid assessment. If you could PLEASE verify I have this correct I would appreciate it!
I need it now as we have to pay down the balance after all grants/loans/ lump payments are cleared to divide remaining balance into 10 mos payment plan to get payments as low as possible. We will take some from the 529 plan each summer when we get the bill.
If you can be specific about where you made this disclosure (which form and exact question), it will help.
If it really happened this way (less need-based aid because of expected assistance from an extended family member), I would be surprised. This would be very unusual.
@BelknapPoint UR told me on the phone when we went over aid that they reduced my fin aid by the amount I said that my parents will contribute. I believe it was on the CCS Profile but I have to double check.
I read it a few places but here is the last article I read, esp the part about account ownership & also withdrawls. I also read about it on Forbes and WSJ. Thanks!
@BelknapPoint I just checked and I wrote in the CCS under Students expected resources for 2017-18 section SR-150 this $5000 THe FA rep at UR told me the FA was reduced by this amount.
Very interesting. What about the students and their parents who aren’t aware of an existing 529 account owned by a grandparent (or any other person) that names the student as the account beneficiary? What about those students and parents who know that an account exists naming the student as the beneficiary, but they can’t be sure how much money may be made available, or even if any money will be made available? What do those people report on the financial aid forms? The point here is that students and their parents can only legitimately report funds that they own, control or have a legal expectation to receive (i.e. trust funds).
Receiving money from a grandparent owned 529 would be reported on FAFSA as untaxed student income, but it would not have any impact on financial aid until two years after it was actually received. Money received in 2017 would be reported on the FAFSA used for the 2019-2020 academic year. How schools that use Profile treat money received from a grandparent 529 will depend on the specific policies used by each school.
SR-150 is used to report grants, scholarships and fellowships the student has received or expects to receive from sources other than the college or university. This is not the proper place to report an expected contribution from a grandparent 529 account, because such a contribution is not a grant, scholarship or fellowship. It is a gift, and would properly be reported in SR-165A, if there is a reasonable expectation of receipt. My guess is that UR treats differently those amounts reported in SR-150 and SR-165A. Outside scholarships are typically used to reduce government and institutional need-based aid on a dollar-for-dollar basis, but I think it unlikely that the same policy would be applied to expected gifts from relatives and other sources.
There is a spot for saying where the money is from. The instructions for questions SR-150 and SR-165A both say to list sources of funds reported there in the Explanations/Special Circumstances (ES) section. If you actually did report the expected money from the grandparent 529 in SR-150 (where it doesn’t belong), the discrepancy might have been noticed by the FA office if the source were disclosed as requested in the ES section
@BelknapPoint Ok, thanks, yes I did put it in the wrong spot, so should I call and tell them? Then transfer the 529 into her name (if allowed) to avoid the hit of it being seen as untaxed income for her next fin aid yr?
@BelknapPoint I understand its not going to count for 2 yrs but at time of disbursement it seems to matter who the owner of the 529 Plan is. and in 2 yrs I won’t want the fin aid reduced either, of course.
Not enough information to answer this question. One other thing to consider is transferring the account to you instead of your daughter (if a transfer of ownership is allowed by the plan). Whether it’s owned by you or your daughter will make no difference in FAFSA EFC (in either situation FAFSA treats it as a parent asset). Colleges that use Profile may give harsher treatment to student owned 529s than parent-owned 529s. It depends on the specific policies of the school. Finally: if your daughter becomes the owner of the 529 account, she will legally be able to do anything she wants with the money. It will be her money, and using it for spring break in Aruba instead of paying the bill for the next semester may be more appealing to her. Obviously, I don’t know your daughter, but you understanding all the possible outcomes is a good thing.
@BelknapPoint Ok, I understand, yes, but doesn’t her or I owning it serve us better than grandparents owning it when it comes to withdrawls? Oh she wants it for school, she is so excited about college, she’s a real nerd and would rather study than go to Aruba, lol, but I get your point and appreciate your saying it!
So if it turns out that it was in the grandparents name, like I think, should the school bump up our award by the $5K? In theory anyway? lol
I am thinking, now that I have a better understanding and all of this is above board, should I tell the school my plans or just tell them I put the 529 in the wrong spot and not about transferring the account name?
When it comes to withdrawals, yes. Withdrawals from a student or parent-owned 529 are not reported as income on FA forms, while withdrawals from a grandparent-owned 529 for the student are reported as untaxed student income. On the flip side, 529s held by grandparents are not reportable assets, but 529s are reported as an asset if owned by the student or a parent.
Right, so I may not know your daughter, but I do know my own. Teenagers/young college students can change quickly, much more quickly than a college career will last that may require funds from the 529 account for the duration. But I know you get my point.
Maybe. There’s a big difference between a grant or scholarship award that needs to be reported in SR-150, and an expected gift from a relative that may or may not need to be reported in SR-165A, depending on the circumstances.
There’s no requirement to tell the school what you might do in the future with various financial accounts.
@BelknapPoint Thank you very, very much! I just want to minimize our hits but do it in proper channels and it is very confusing. I appreciate the time and energy you put into your responses. You have helped me in different threads for about 9 months now and you always seem to know the solution, very impressive!
I’m glad I could be of help. The financial aid forms, especially Profile, can be confusing. Asking questions if you don’t understand something is definitely a good thing. There are enough active posters here who have been around the block once or twice who can usually provide good information and make meaningful suggestions.