<p>If any of your knowledgeable financial aid people can help, I have a question.</p>
<p>The student's grandmother has a 529. Usually people say, wait until the student's senior year to take money out of it, because it counts as student income for the next year's FAFSA. But if the student doesn't make any other money, couldn't you conceivably take out $6000 a year since that's how much income the student can make each year?</p>
<p>The 6k is the ‘cap’ for income taxes, not for FAFSA purposes. Students can make about 6k without paying income tax, but FAFSA cuts in earlier.</p>
<p>Thanks, purple. I guess I’m wondering how much you can safely take out of the 529 without it messing up the student’s financial aid for the next year.</p>
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This is not correct. $6,000 is the protected income for a dependent student for FAFSA. (actually I think it may be a little higher this year - $6,000 was the 2012-2013 figure)</p>
<p>The standard deduction for taxes for someone who is claimed as a dependent by someone else is $5950 for 2012 but that is a different issue.</p>
<p>Thanks for the clarification, swimcatsmom. So can we apply $6000 or so of the grandparent-owned 529 to the student’s education without it impacting financial aid package, or does it depend on the school?</p>
<p>If a school is a FAFSA only school it will use the FAFSA EFC to determine aid. As FAFSA ignores the first $6,000 of student income, it should have no impact on aid. </p>
<p>I don’t know about schools that use CSS or other forms for their own institutuional aid.</p>
<p>if the 529 Plan is owned by the Grandparent, IIRC then it is not listed on the assets of the student or the parent. Unless the law has changed dramatically in the last year, the beneficiary of the 529 Plan has no “right” to the monies in the Plan. The Grandparent could simply decide that they want to take a vacation and the money would be gone. If the money in the Plan is listed, it is listed as a parents’ asset and in my experience, about 5% is taken each year for the Family Contribution.</p>
<p>If you are worried about fluctuations in the markets, simply convert the assets of the 529 Plan into cash within the Plan. You are allowed to adjust the holdings in the 529 Plan at least once a year.</p>
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They will have to report taxable income and pay a 10% federal penalty tax on the earnings portion of the non-qualified distribution.</p>
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<p>True, but its still their money! Some people think that a 529 Plan is like a trust or a UGFMA account. It is not.</p>
<p>Hat - Parent46’s question is not about reporting the grandparent owned 529 account as an asset, but about the income aspect. You are correct, a grandparent owned 529 account is not reported on FAFSA as an asset at all. However any qualified distributions (from grandparent owned 529 accounts) used to pay for the student’s education expenses are treated by FAFSA as income to the student. That is what parent46 is asking about and trying to determine how to best handle.</p>
<p>And don’t forget, the GP 529 “income” is in addition to any summer job or other income the student has, so it’s $6k total that’s protected (or a slightly higher amount if it has gone up).</p>
<p>CSS Profile asks you to list all 529 accounts with the student as a beneficiary, so it may be treated as an asset, depending on the school. Tax law regarding 529 accounts is complex. They are considered a completed gift for gift tax and estate planning purposes, and if the beneficiary is changed, it may be considered a gift to the new beneficiary - possibly triggering either a gift tax return, or in rare cases gift tax due from the original beneficiary.</p>
<p>Hat - If a non-qualified distribution is made by the grandparents, it will include both pricipal and earnings, and the earnings portion will trigger both income tax and the 10% penalty. If they claimed a tax credit or deduction on their state tax return, they will likely face recapture of that deduction as well. Legally, it is not their money. It is very much like a trust, in that it is the beneficiary’s money, but the account owner maintains control. Yes, they can remove the money, but there are significant tax consequences for doing so.</p>
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<p>CTScoutmom - The money in a 529 Plan is the owner’s money, not the student/beneficiary’s. So long as the money is used for educational purposes (perhaps the owner wants to go take some classes as the local college) there will be no tax consequences. The student/beneficiary cannot sue to compel the release of the money to pay his/her tuitiion. The student/beneficiary can be changed to anyone else without their permission. None of these things could be done if it was a true trust (or if the owner was only a trustee).</p>
<p>Actually, the Profile asks you to list all the 529 accounts the PARENT owns:</p>
<p>“Enter the total value of your parents’ assets held in the names of your (the student’s) brothers and sisters who are under age 19 and not college students.” (and then goes on to give you a place to list the 529 amounts in the worksheet)</p>
<p>Later on, Profile asks you to list all the trusts of which the kid is a beneficiary. But I’ve researched this and a grandparent-owned 529 is NOT a trust because they still own the money (although they would have to pay a penalty to use it for non-educational stuff like a car). They can take the kid’s name off any time and give it to another kid. They can use it on themselves, for their own education.</p>
<p>Some specific colleges that we applied to asked in their supplements to the Profile about 529s owned by grandparents.</p>
<p>So back to my question: If I were to ask my mom to give my son under $6000 for his education next year, and he did not make any income of his own, do you guys think that would affect his financial aid package?</p>
<p>I want to ask about a particular part of this thread, specifically, if and where one should report a 529 owned by a grandparent. I’ve read on FinAid/Fast Web the following:</p>
<p>The CSS/Financial Aid PROFILE Form has a different treatment of 529 plans. All 529 plans that name the student as a beneficiary are reported as assets on the PROFILE. (The PROFILE also considers assets in the name of siblings who are under age 19 and not yet enrolled in college.) So a grandparent-owned 529 plan will be reported as an asset on the PROFILE.</p>
<p>But I have not found where – i.e., in response to which Profile question – this would be disclosed, either as a parent asset or as a student asset. Nowhere does the Profile questionnaire specifically ask for disclosure of 529s owned by someone other than the parent or, in the case of a UGMA, by the student. And the question SR165 about amounts expected from relatives doesn’t even mention 529s in the help/instruction box. The CSS FAQs state only that the 529 should be reported if it is a parent asset. Can someone tell me where the profile instructs me to enter the 529s owned by someone other than the parents or students?</p>
<p>Thank you!</p>
<p>I believe I pasted the instructions directly in from the CSS Profile. It seems they ask for 529’s owned by the parent. Then they ask for trusts that name the student as beneficiary owned by anyone separately (but a 529 is not a trust). They don’t ask for 529’s owned by grandparents, except on some of the specific colleges’ supplements.</p>
<p>Thanks Parent46. My read as well, but when I read the assertion to contrary on FastWeb / FinAid, I wasn’t so sure.</p>
<p>I called the PROFILE help line about requirements for a 529 owned by the grandparents. Yes, PROFILE wants this reported. It should be reported under ES (Explanations/Special Circumstances) at the end. You write something along the lines of, “Student’s grandparents own a 529 valued at $XX,XXX which is likely to be used for student’s college expenses.”</p>
<p>The colleges know what to do with this information – they have their own formulas, which none of us are privy to. The colleges also know that the grandparents can decide to use the 529 however they wish. If they spend it on nursing home costs, or whatever, then you report that to the college financial aid office.</p>
<p>It would not be hard for colleges to find out that some of your child’s college expenses are being paid with a grandparent’s 529. At the grandparent’s request, the payment goes directly from the 529 to the college. There is a very distinct paper trail, including tax documents that the college financial office maintains. </p>
<p>A grandparent-owned 529 is NOT reported on FAFSA, by the way. Yes, it’s all pretty confusing. I have called both FAFSA and PROFILE help lines and found the personnel to be courteous and knowledgeable, by the way.</p>
<p>Well, I think I recall that some colleges ask for the GP 529 on the CSS and some do not. If this is indeed the case I can tell you I certainly would NOT list in in “special circumstances” for the colleges that don’t add that question. The colleges know some may have GP (or other non-parent) 529 accounts - if they required that info they’d ask for it. It is not dishonest to answer ALL their questions accurately and honestly.</p>
<p>The question is: "Enter the total amount you expect to receive from your relatives and all other sources. (List sources and amounts in Explanations/Special Circumstances (ES).)</p>
<p>If you’re answering this question, and your child will receive funds from a grandparent-owned 529, then you divide the total value of the 529 by five. So, if the 529 is valued at $50,000, then you answer this question as 10000. </p>
<p>The reason for dividing by five is that assets are expected to be disbursed over five years of schooling and you are being asked to report what will be disbursed for the 2013-2014 school year only.</p>