I come to a different conclusion. Let’s say that child 1 is a current college sophomore and child 2 is three years younger and a current high school junior. If a grandparent gifts money to a parent in January 2016 to be used for child 1’s tuition, it will have no effect on child 1’s current or future financial aid (assuming child 1 graduates on schedule in spring 2018). However, that gift in January 2016 will need to be reported on both FAFSA and Profile as parent untaxed income for tax year 2016, and tax year 2016 will be used in calculating child 2’s college sophomore year (2018-2019) financial aid.
Gifts to parents are considered untaxed income?
Why is this a prior-prior issue? The ‘income’ from the grandparents paying for college is not IRS income, just a question on the FAFSA or CSS. Why is it tied to the income tax? Other assets aren’t tied to the tax year.
I don’t know whether a 529 makes sense in this case, but it makes no sense to me for a grandparent to make a gift to the parent, who then turns around and sends it to the school. Assuming that the grandparent is paying current educational expenses (as opposed to funding future ones), the grandparent should just directly pay the school whatever amount of the billed expenses that the grandparent wants to contribute. There are not even any gift tax limits on amounts that are directly paid for educational (or medical) expenses.
It’s not “tied” to the income tax, but a distribution from a grandparent-owned 529 still needs to be reported as untaxed **income/b on FAFSA and Profile. Income is reported by tax year (going to prior-prior starting with academic year 2017-2018); assets are reported as of the date of filing.
So really…the grandparents would be way smarter to gift money to the parents…not run it through a 529. So they could give the parents an annual gift. That isn’t included in the FAFSA at all…right? regular money gifts are not in used on the FAFSA, right?
a beneficiary for a 529 plan can be changed DAILY if necessary, without the beneficiary’s knowledge or permission.
For example: A grandparent can LEGALLY have a 529 in a 2 year old grandchild’s name today, and change the beneficiary to the 20 year old other grandchild tomorrow, and pay the 20 year old college tuition using the money in the account (which likely has nontaxable earnings- if the grandparent has chosen well and the market has done well).
@Bella723 If the kids are close to or at college age then your advice may be the best IMO. Just let the grandparents pay the school directly.
But would Profile schools consider the money from the Grands to be some version of “unearned income” for the parent … which could reduce aid by nearly 50% per dollar? Or not?
Yes, I believe so. If paid directly to the school, reportable on Profile line SI-160 (untaxed student income); if gifted to a parent, reportable on Profile line PI-230.
@CGHTeach Distribution from a 529 cannot be gifted to parents, they must be used to pay for college tuition, room, board only, or they all become taxable. I’m not familiar with FASFA, but I would assume from what other posters said that if the distribution is paid to the school for a particular student, it would become student income ** At the time of distribution
This is correct; reported on FAFSA line 45.j.
But if the gift is made to the parents (but not from a 529)…and the parents pay the tuition bill…this is NOT reported on the FAFSA.
Parent tuition payments are not reported on the FAFSA.
I think this is correct, so my post #20 should be amended regarding FAFSA reporting. The difference here is FAFSA line 45.j. which asks about money received by or paid on behalf of the student. Unlike Profile, there is no corresponding question for parents on FAFSA.
So back to my original suggestion. If the point is to NOT have a grandparent contribution show up on the FAFSA…the grandparents can gift the money to the parents…who then will pay the college costs from the gift. NO 529 at all.
Sure, but there can be advantages to using a 529, some of them quite big advantages depending on the circumstances. Tax-free growth and a state tax deduction in many states for 529 contributions lead the list.
Here’s the simplest way: just wait until the student is a second semester sophomore. Any gift or income, earned or unearned, taxed or untaxed, from that point on is simply irrelevant for financial aid purposes under the new prior-prior rules, assuming the student finishes college in four years.
Agree about waiting until the kid is a second semester sophomore to use 529 money…but that doesn’t help the younger sibling…as you pointed out above.
But really…what is the parent income? Because much of need based aid is determined with this…and trying to leverage an unknown contribution from the grandparents might not make any difference anyway.
Not sure how Grandparents paying from a 529 plan for #1 would change #2s EFC even for Profile schools regardless of when done.
If it is paid to the school on behalf of #1 at the end of Sophomore year or later, then it would change #1’s income but only at a time when #1 is no longer seeking FA (assuming no graduate school or merit based graduate school) it will leave parent income and assets the same. So #2’s EFC would be unchanged by either #1’s income or assets.
@SeekingPam the 529 distribution would be included when child two is applying for aid their first year…unless child two is several years younger.
@BelknapPoint correct?
@thumper1, the distribution benefits #1, and dings only child #1. The assets or income of children over 18 are not counted for siblings unless they are parent assets or income which a grandparent 529 would not be.