FAFSA, 529 plan account owner

[_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>