<p>Yes. I’ve unfortunately had this misconception that extended family can help fill the gap, but it’s tricky avoiding untaxed income to the student. You ask the kid to come up with $X the first year, s/he does via extended family, and then it becomes $X+(higher EFC)+(TCOA increase). A constantly moving target.</p>
<p>Once the money is in a 529 plan, it’s sort of trapped. Any disbursements have to go for qualified expenses, otherwise taxes and penalties apply. There will be a documented link from the 529 to the student and school. In spite of what anyone thinks might be common sense, that has to be reported as untaxed income to the student. It would be better to have the money treated as a parental asset.</p>
<p>It seems there are two basic options:</p>
<p>1 - Loan money to the student, and possibly forgive the loan later.</p>
<p>2 - Funnel everything through the (custodial) parent.</p>
<p>Any other ideas?</p>