Fortunate to have some help coming from a Grandparent (my mother) to help pay college expenses for her 2 grandchildren. We will need to use the funds from grandma for the first time for junior year semester abroad fees due next month. Are there any advantages to switching the 529 owner from grandma to parent at this point or is that unnecessary due to FAFSA using 2 year old taxes? Thanks for any guidance regarding this question and my apologies if I posted in the wrong forum.
@BelknapPoint is good at answering these questions. But I think I have this right.
Any money paid by grandma in 2019 (this year) would not be reported until you file the 2021-2022 financial aid forms. And by that time, this student will be a graduate…right? So no Advantage to switching.
Also, would it matter? Does the student receive need based financial aid based on the FAFSA?
Yes, that’s right regarding reporting the money used from the grandparent owned 529 as student untaxed income. And, if there are any more financial aid forms to file for the student in question for any academic year, if the 529 were transferred to parent ownership the parent would be required to report any funds in the 529 as a parent asset. So there is potentially a good reason not to transfer ownership from the grandparent to a parent.
@BelknapPoint Gonna ask you directly this question that relates to the original post.
On the specific issue of “transferring” ownership from the grandparent to a parent: I am wondering of transferring ownership is the only way/best way to get those funds in the parent-named account.
Say there is an account for the student Joe in the grandparent’s name in State # 1. The kid grew up with parent in State # 2.
Then for whatever reason, the parent and Joe want those funds in the parent’s name. It seems like there are two options:( I know that both options will mean that the dollars are IN the parent’s account and so will be included on the FAFSA.)
(1) work with grandparent to change name on the account in State # 1 (grandparent state) so that the account is now in the name of the parent.
(2) transfer the funds from the grandparent account in State # 1 to a pre-existing account in the parent’s name in State # 2.
Is Option (1) the only way to avoid immediately treating the money transfer like income for the student?
Does Option (2) require actually withdrawing the money first from the grandparent account and then immediately depositing into the parent account in the other state or is there a way to “transfer” without the dollars being treated like income? Do the two specific states matter?
To some extent, the answers will depend on the rules used by the specific 529 plans. Some will allow a change of ownership and some will not. The easiest way to transfer funds from one 529 account to another is with a rollover, but I don’t know if certain 529 plans have rollover restrictions that other plans do not.
A change of ownership from a grandparent-owned account to a parent-owned account or a rollover from a grandparent-owned account to a parent-owned account should not result in a financial aid reportable event as untaxed income for the student/account beneficiary, as neither event results in expenses being paid from a 529 account for the student’s benefit. However, once the assets come under the parent’s control, they will need to be reported as a parent asset.
I hope this answers your questions. If not, perhaps I am not correctly understanding what you are asking.