FAFSA, 529 plan account owner

[martina99]

<p>Hi, sorry if this has been asked before-</p>

<p>S has a 529 started by an aunt. If the account owners is the aunt, and the beneficiary is S, how would this be listed on the FAFSA, since it is not a parental or student asset?</p>

<p>Thanks!</p>

[_rentof2]

<p>It is not listed on the FAFSA. Next year, after your son has presumably applied some funds from his aunt’s 529 toward his college costs, he may or may not be required to list that amount under the question about “bills paid on his behalf” by someone other than his parents. It’s unclear in the rules. But that’s next year… for this year, there is no place to report it, and reporting it is not required. It’s not really his asset, after all. The money still belongs to his aunt.</p>

[entomom]

<p>What a smart AND generous aunt!</p>

[martina99]

<p>Thanks! & yes, her planning 18 years ago will be a big help toward S’s education as our finances have not fared so well.</p>

[kelsmom]

<p>Payments made on the student’s behalf DO have to be reported as gifts to the student on the FAFSA. It’s very clear in the regulations: When the owner is some other person (including a non-custodial parent), distributions from these plans to the student count as untaxed income, as “money received.” This is from the Federal Aid Handbook.</p>

<p>Some other person … refers to someone other than the student or custodial parent. In those two cases, the refund value of the 529 is counted as a parent asset.</p>

[_rentof2]

<p>Kelsmom, could you provide a link to that? I have a kid at the high school (I mean, not my kid, but one whom I’ve been helping with apps) who has a situation like this. The student is a high school senior this year, so it’s not pressing, but her parents were wondering about this. In trying to do internet research on it myself I came up with this:</p>

<p>

As long as distributions from QTPs and ESAs do not exceed the qualified education expenses for which they are intended, they are tax free, so they will not appear in the next year’s AGI. They should not be treated as untaxed income or as estimated financial assistance. For more information on these benefits, see the IRS’s Publication 970, Tax Benefits for Education.

</p>

<p>It’s also from the Federal Aid Handbook. The issue is that when a student reports the distributions from accounts owned by aunts/uncles/grandparents, it does get reckoned as “untaxed income”, which the passage above seems to say it should not.</p>

<p>I also found this article:
[FinAid</a> | Saving for College | Section 529 College Savings Plan Loophole](<a href=“http://www.finaid.org/savings/loophole.phtml]FinAid”>http://www.finaid.org/savings/loophole.phtml)</p>

<p>and this on Morningstar’s site:

On the FAFSA application, there is a question asking one to report money received to pay bills for a student. Does this include fund distributions from a 529 account not owned by the student or a parent, e.g., a family member?</p>

<p>In my opinion, it is not clear. The 2006-2007 Federal Student Aid Handbook states that distributions from college savings plans “should not be treated as untaxed income or as resources.” FAFSA worksheet B asks for information on “other untaxed income and benefits,” and “money received, or paid on your behalf (e.g., bills), not reported elsewhere on this form.” I think the better policy would be to ignore qualified distributions for all purposes on the FAFSA, but there is not yet clear authority adopting this policy.

<a href=“http://www.morningstaradvisor.com/articles/article.asp?docId=13206[/url]”>http://www.morningstaradvisor.com/articles/article.asp?docId=13206&lt;/a&gt;&lt;/p&gt;

<p>I’d be very interested to hear your thoughts on this!</p>

[kelsmom]

<p>The rules changed for the 2008-09 award year. The latest edition of the FSA Handbook is very clear: <a href=“http://www.ifap.ed.gov/fsahandbook/attachments/0910AVGCh2.pdf[/url]”>http://www.ifap.ed.gov/fsahandbook/attachments/0910AVGCh2.pdf&lt;/a&gt;. Page AVG-18 explains the rules for each type of plan.</p>

<p>Prior to 08-09, the distributions were counted in the financial aid packaging. Beginning with 08-09, they are not … thus, the rules for reporting have changed.</p>

[martina99]

<p>Re 529 listed as gift to student -</p>

<p>Are you saying this should be listed as a gift on this year’s FAFSA as an incoming Freshman? He has not received this gift yet. Also, would the full amount be listed or the amount to be distributed to him?</p>

<p>We’re not sure yet how the money will be distributed, possibly an even amount over 4 years, but also thinking of taking the distribution over the first 2 years.</p>

[kelsmom]

<p>It’s the amount distributed to him … and this year’s distributions won’t be reported until next year.</p>

[_rentof2]

<p>Thanks, Kelsmom. I appreciate the info!</p>

[friedpasta]

<p>Besides looking at this FSA handbook for 529, I scrolled down and looked at the “money received” section, page 22. </p>

<p>Loans? I thought loans from any source didn’t count? Someone like a grandparent (besides a parent) paid a dental or medical bill for you? Someone bought your books? What if an older sibling or a grandparent pays a child’s auto insurance for some reason? All counted as untaxed income? The non-custodial parent pays for something for the child that is not “officially” in the agreement - it counts against the student as untaxed income? </p>

<p>I’m sorry, but some of that seems extremely unreasonable. No wonder people try to stretch the truth on the FAFSA. Not right, but I can see why they would do it.</p>

[_rentof2]

<p>Yes, I agree that counting a paid dental bill and that sort of thing as untaxed income is unreasonable. Especially because untaxed student income is so severly assessed in the FAFSA formula. Just have grandma give mom and dad the money for the dental bill. Problem solved.</p>

<p>It’s silly, though, when you can just do it that way and --voila!-- now it doesn’t count.</p>

<p>These are things that make people a little cynical. They should just get rid of that question, at least for dependent students. (Not that they’ve asked for my opinion. ;))</p>