For Fafsa purposes, it is best to have an account owned by a parent or a dependent student
"If you’re trying to get the maximum amount of financial aid, it is generally better to have a tax-advantaged 529 account owned by a parent or dependent student, rather than by a grandparent. Both parent- or student-owned plans are considered parent assets on the Fafsa (the federal financial-aid filing), says Mark Kantrowitz, publisher of the educational site Savingforcollege.com. When money sits in those accounts, the assets are considered at up to 5.64% of their value for financial-aid purposes.
Grandparent-owned accounts, by contrast, don’t count at all—until the student takes a distribution for school expenses. At that point, the money withdrawn is considered at up to 50% of its value for aid purposes, he says.
In other words, Mr. Kantrowitz says, “$10,000 in a student- or parent-owned 529 plan will reduce eligibility for need-based aid by as much as $564, while $10,000 in a grandparent-owned 529 plan will reduce aid eligibility by as much as $5,000.”"
But if no grandparent owned 529 withdrawals are made to pay for college until AFTER the kiddo files the FAFSA for their junior college year…the grandparent owned ones won’t count…at all in the financial aid equation…
The parent or student owned accounts will be assets all the way.
Yes - that’s why it’s advisable if possible to use the grandparent owned 529 to pay for the final year’s expenses. Then it won’t come into play at all. Now that they’ve change the year used to calculate income, one unintended consequence is that the grandparents’ funds can now be used for the final 2 years.
When it is used, it is treated as untaxed income to the student, which is why it is suggested that it would impact aid by as much as 50%. I do wonder what percentage of people neglect to report this income, and how many have their applications corrected because the payments are made directly to the college. Probably similar to the percentage of those with full ride scholarships who don’t realize part of their scholarships are taxable.
Right. With prior-prior reporting now, a student on a traditional four year schedule could use grandparent 529 money as early as spring semester of sophomore year without any consequence to need-based financial aid.
$10,000 in a grandparent-owned 529 plan has no impact at all on the student’s need-based financial aid; the money can only becomes an issue when it is actually spent for the student’s benefit.