I know that as a non-custodial parent, any money I withdraw from (my 529 plan in name of with son/daughter as beneficiary) into their account should be declared in section 45j of the FAFSA. Lets call this value ‘A’.
This obviously reduces their financial aid for the next year due the the increase in EFC.
Lets say that my son/daughter earns money in summer. And then “pays me back” some of the money that I gave them from the 529 plan in the same tax year into my regular checking account. Lets call this value ‘B’
So now when they fill out their FAFSA can they put A-B in section 45j instead of putting A? This obviously will improve their financial aid. Note that this is a FAFSA only school.
So basically you want to at least partially offset a gift to the student by taking into consideration a gift back to the NCP gift-giver. No, I don’t think that you can do this.
Have you though about changing ownership of the 529 to the student who is listed as the beneficiary? Most 529 plans do allow for a change of ownership. The funds in the 529 would then be reported as a parent asset and assessed at a lower rate then they are when reported as student income, which is what happens when disbursed from a NCP-owned 529. Or, if the student can wait on using the funds in your 529, hold off on using that money until spring of the student’s sophomore year, since from that point forward it won’t be reported on FAFSA under the new prior-prior rule (assuming the student finishes college in four years).
Thanks for your answer, but based on what are you claiming I cannot do this?
I know for sure that I can “lend” money out of my regular checking account to my son. I give him some money in the beginning of the year, and he gives it back to me before the end of the year. That money does not need to be reported on the FAFSA. I am claiming what I want to do with the 529 money is very similar, since he really only got A-B money from me overall.
Regarding the rest of your paragraph, it should be spring of Junior year, not sophomore year.
Or is this prior-prior year a rule I am not aware of?
No, it’s now spring of sophomore year. If your kid will start as a freshman this fall, the 2015 tax year was used for FAFSA income. Sophomore year (academic year 2017-2018), 2015 income will once again be reported on FAFSA. Junior year (academic year 2018-2019) will use 2016 income, and senior year (academic year 2019-2020) will use 2017 income. So beginning in January 2018 (spring of sophomore year), student or parent income will no longer be an issue for FAFSA reporting purposes, assuming the student finishes in four years.
A distribution from a 529 is not a “loan” to the beneficiary; under the tax code it is akin to a gift. I don’t see any way that you can interpret a 529 distribution to be a loan, even if the beneficiary pays money to the 529 account owner in exchange. You’re trying to fit a square peg into a round hole.
Thanks for your answers, but I just realized because of the new prior-prior rule, it all does not matter anymore. Since I am discussing money I withdrew into my sons account in the Spring of sophomore semester.