When considering a college student’s eligibility for financial aid, who owns their 529 account makes a difference. Sarah Mouser, writing for Advisor Perspectives explains.
“Parent-owned 529 plans are treated differently than grandparent-owned 529 plans when applying for financial aid and completing the free application for student aid (FAFSA).”
“When a 529 plan is owned by a parent or student, distributions are ignored. But when distributions from a 529 plan occur from an account owned by a grandparent or other relative, it is considered untaxed student income, which is important because income carries a much more significant impact on aid eligibility than assets. This income can reduce eligibility for need-based aid by as much as half of the withdrawal.”
“When completing the FAFSA, there is a two-year “look-back” period. For families filing the FAFSA in fall 2020, they will be completing this form using 2018 tax data. For a student attending a four-year university, grandparent-owned 529 plan distributions used to pay for expenses in their first few years of college will impact FAFSA filings for their later years.”
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Source: Financial Planning for Women