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New FAFSA timing rules may affect 529 plans
(September 16, 2015) - The U.S. Department of Education has announced new income reporting rules for the FAFSA, beginning with the 2017/18 school year. Instead of using prior year income as "base year" income, the FAFSA will use prior-prior year income. For example, the FAFSA will report 2015 calendar year income for the 2017/18 EFC determination instead of 2016 calendar year income.
The new rules offers grandparents greater flexibility in tapping their 529 accounts for grandchildren. Instead of waiting until the year the grandchild begins their final year of college, they need only wait until the junior year of college which typically includes the second semester of sophomore year. By waiting until then the 529 plan will have no impact on federal aid under either asset-inclusion or income-inclusion.
The 2016/17 FAFSA rules will remain the same as current treatment.