How do colleges know about 529's by grandparent's

My son’s grandfather wants to open and contribute into a 529. Do colleges know if he does that? Someone told me that there is a question on the CSS profile if anyone has a 529 for the student. But if you answer no, is there a way the college will actually find out?

Why would you lie? And why would you lie on an official application that requires you to sign that you’re providing complete and accurate information? A better question than, “will they find out,” is “how can grandparents contribute without increasing our EFC?” I think there are ways and the experienced posters on CC will know them. For instance, some families let the student take out the federal student loans (~$27k total) then repay them as a gift when they graduate. Others wait until the student’s senior year to contribute so it won’t affect their financial aid. But lying on official forms sets a bad example that can cause all kinds of problems. I’d find another way.

How will the college know? Well…first off, presumably that grandparent 529 will be used to pay college costs. And if so, you need to be honest on subsequent years on both the FAFSA (which asks for this) as well as the Profile.

Why would you consider being dishonest about the existence of this account?

The account doesn’t exist. He wants to know if putting money is a 529 will hurt the financial aid scholarship award. What if he does it on his own and we never knew (the first year)?

Is there such a question? I don’t remember it.

Isn’t there also gift tax to consider for the grandparent, how much can he contribute to a 529 in a year?

gift tax only applies if the gift is over $14K, for one grandparent, but a couple can contribute up to $28k.

Or, instead of committing fraud, you could explore the options outlined in post #1 above.

(But far be it from me to attempt to dissuade you - and your student - from a life of crime!)

Instead of trying to lie maybe go about doing it the legal way. If the 529 is in your name or the child name then it has to be reported. If the 529 is in the grandparents name with the child as the beneficiary then it’s considered an asset of the grandparents and doesn’t have to be reported.

The question on the subsequent FAFSA is one about money paid on the student’s behalf. If the grandparents pay college costs, that will need to be included.

but really…these financial gymnastics might not latter at all.

The family contribution is based mostly off of parent income. If yours is sufficiently high, the aid might not be better anyway without the grandparent contribution.

Also, the vast majority of colleges do not meet full need…so this might not matter at all at those schools either.

I think it’s wonderfully generous of the grandparents to make an offer at all.

If the 529 doesn’t exist yet, why even put the money in one? Why not just gift the money to you (the parent)?

And 529 money should not affect the awarding of merit scholarships at all. Only maybe need based aid.

Totally agree. The cleanest way would be for the grandparent to gift the money to the parent…who would use it to pay the college bill.

Until the money is withdrawn and used to pay the student’s tuition. So, even though it won’t be reported as an asset, it would be reportable as income in the year(s) that it’s used.

Grandparent-owned 529 accounts that name the student as the beneficiary are not reported as assets on FAFSA or Profile, but any distribution from such an account will be reported as student untaxed income for the year that it was received. This is the opposite of student and parent-owned 529 accounts, which are reported as an asset but distributions from which are not counted as income. Since income for both the student and parents is generally treated more harshly than assets by the financial aid formulas, careful consideration should be given to how a 529 account is owned and when distributions take place.

With the move to prior-prior reporting that commences for FAFSA and Profile with the 2017-2018 academic year, a grandparent-owned 529 that makes its first distribution no earlier than the spring semester of the student’s sophomore year in college will not show up anywhere on financial aid forms (assuming the student graduates in four years).

Of course, the grandparent always has the option of gifting the money to a parent, but in that case the grandparent loses control of the money (may or may not be a concern), and the excellent tax benefits of a 529 aren’t put to work.

If the student is already approaching college-age, the tax benefits of a 529 are minimal.

Question - If the grandparent gifts the money to the parents during child 1’s sophomore spring, to use for child 1’s tuition, what is the possible effect, if any, on child 2’s EFC, when child 2 is 3 years younger than child 1?

If the money is used for child 1 during sophomore spring, then there will be no asset left for parent to report by the time child 2 has to apply 2 years later.

If parent holds on to that asset to pay for Child 1’s jr and sr years, then some of it will be considered when child 2’s application is considered.

Maybe, maybe not. It depends on many factors, including type of investment, investment return and the tax rate that would apply if the money isn’t growing tax free in a 529. Even a current high school senior would have nearly four years of potential investment growth before the final undergraduate tuition bill is due. And don’t forget the 529s can be used for graduate and professional degrees.

Also, from OP’s posts, we don’t know whether he’s asking about a grandparent setting up a 529 for a newborn or a high school senior, or anything in between.

Assuming the parents don’t have the money in their accounts when they file child 2’s FAFSA…there is no implication for child 2.

Cracks me up when people think they can outsmart the government by asking the internet. Lol!