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COLLEGE SAVINGS 101

Clearing up the confusion: Five popular 529 plan myths

Posted: 2014-04-10

by Kathryn Flynn

Recent survey data has indicated that parents' misunderstanding of 529 plans may be a significant barrier to their use of them. In this slideshow we present five of the biggest 529 plan myths along with the facts to set the record straight.

Myth #1: Money in a studentís 529 account will not affect financial aid eligibility.

Facts:

  • The amount of financial aid a student receives is based on the studentís Expected Family Contribution (EFC).
  • 20 percent of a studentís assets are counted toward their EFC, but only up to 5.64 percent of parentsí assets are counted.
  • Money saved in a 529 account owned by a parent or student is considered a parental asset.
  • As long as the 529 plan is owned by the parent or student, distributions from it are not required to be reported as income on the FAFSA.
  • If a grandparent or other relative owns a 529 account, the assets will have no effect on financial aid.
  • However, qualified distributions from the account will be treated as untaxed income to the beneficiary on the subsequent year's financial aid application and will be counted as the studentís assets. Therefore, it may be wise for relatives to wait to help pay for college until senior year.

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