<p>The rules have changed over the years regarding qualified educational accounts owned by a third party, which makes it somewhat confusing. However the bottom line is that grandparent-owned education accounts, which include 529s and Coverdells, are not reported on FAFSA but are reportable on Profile for the student who is the beneficiary. Distributions are considered untaxed income of the beneficiary.</p>
<p>Thank you, everyone, for the tutorial! I guess now I need to go back and calculate the “damage” to having distributions be student income</p>
<p>The money in question is about 20k. I expect that it will all be spent on college as was intended, but I don’t want to run out of money the last year or get an unexpected hit in aid from too much student “income”. I was trying to budget how much could be spent each year but it seems that one can’t just divide the money by 4. Every dollar spent changes the way the rest is allocated. ACK!</p>
<p>One more observation / question:
It appears that if the money is a reported asset it could be spent more heavily up front and asset value would be reduced so need increased moderately in later years. If distributions are counted as student income they receive the biggest hit of all, percentage wise, and using funds up front could really hurt ability to pay later. However, does the first $6,414 in student income taxed or untaxed fall under the 50% assessment? That could still keep D in the clear since there is only 5k per year if spent evenly.</p>
<p>For the 2012-13 FAFSA, there is an income protection allowance for the student of $6000. So, any student income above that amount is assessed at 50% in determining the student contribution from income. For CSS Profile schools that use the Institutional Methodology for computing EFC, there is no income protection allowance for students. However, most CSS schools also have a “minimum summer earnings” income expectation of typically about $3000. So, for those schools the student would probably need to earn more than about $6000 per year for the school to increase it’s summer earnings expectation (student EFC component from income) above their $3000 expectation.</p>