<p>If during sophomore year of college, a student uses $5,000 from his 529 plan to pay tuition, is this somehow factored into the FAFSA for the next year? Not as income but as some type of support received which decreases potential aid?</p>
<p>No…</p>
<p>So there is no downside to son moving $$ from his regular savings account into a new 529 before completing the FAFSA early next year, and then taking said $$ out of the 529 to pay tuition (other than that particular withdrawal of 529 funds cannot be used in the calculation for an education credit or tuition & fees deduction), correct?</p>
<p>No downside that I am aware of. Also remember for 529 accounts room and board is a qualified expense. So he may be able to designate the 529 account withdrawal for room and board expenses (actual room and board or up to the amount in the COA if he is living off campus) and still be eligible for the education tax credits for tuition and fees expenses.</p>
<p>The 529 account would be reported as a parent asset on FAFSA (assuming he is a dependent for FAFSA).</p>
<p>Your asking 2 different questions…</p>
<p>In question #1 - (because it is the students owned and controlled account) the student would show $5000 less as an available asset. It would not be treated as support received because it was his asset used to pay his debt.</p>
<p>In question #2 - </p>
<p>If the 529 is in the students name and they control the account it is counted as their asset. So all he is doing is moving an asset to an asset with no change in calculation. </p>
<p>If the 529 is owned and controlled by someone else and is used for the student it is not ever counted as the students asset. If the parent owns the account it is counted as a parents asset (at the lower parents rate), if a grandparent owns the account it’s inviable for FAFSA purposes. </p>
<p>(If your school uses the CSS Profile, it asks the family to list all 529 college savings plans that name the student as a beneficiary, so plans owned by a grandparent but with the student named as a beneficiary would have to be reported.)</p>
<p>
No, that is incorrect. If the student is a dependent for FAFSA then a 529 account owned by him is reported as a parent asset on FAFSA.</p>
<p>Swimcatsmom, if the 529 is in the student’s name, but he is a dependent, do you know if the parent can take the tax deduction for the 529? (In New York there is up to a $5K deduction on state taxes for 529 contributions.)
It seems like that would be too good to be true…</p>
<p>I have no idea. By my own type of logical thinking I would imagine that only the student could take the tax deduction in that situation. Of course my logical thinking and tax people’s logical thinking rarely seem to coincide.</p>
<p>^^^ swimcatsmom - thanks for the correction (changed in 2009).</p>
<p>This is where I confirmed the change if it helps the OP</p>
<p><a href=“How do 529 plans Affect Financial Aid? - Savingforcollege.com”>How do 529 plans Affect Financial Aid? - Savingforcollege.com;
<p>I’m familiar with the Maryland 529 tax deduction. The rules there are that only the account holder can take the $2500 tax deduction. In the case of a student-owned 529, the student is the account holder. The parent is the custodian until the student reaches the age of 18 for UGMA-529s and 21 for UTMA-529s. It might be beneficial to make the contribution when the student is no longer a minor, but that’s assuming the student has a tax liability in that year. I think the deduction can roll over to the next year if not fully used in the year of the contribution.</p>
<p>Each state that allows tax deductions might have different rules.</p>