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Am I hurting my grandchildís eligibility for financial aid by putting money into a 529 plan for him?
Simply owning a 529 account for your grandchild will not affect your grandchildís eligibility for need-based financial aid, but actually using the account could have a negative impact in the subsequent year.
The value of assets owned by a grandparent (or other non-parent) is not reportable on the FAFSA financial aid application. This rule extends to 529 plans owned by grandparents.
However, if a grandparent provides any type of financial support to the student, that support is reportable on the following yearís FAFSA as student income. The financial aid formula counts student income just as it counts student assets (although the assessment percentages and allowances are different). Most financial aid offices interpret the rules as requiring distributions from grandparent-owned 529s to be included as student income, even when the distributions are not reportable for federal income taxes (i.e. they are tax-free).
If a grandparent were to use the 529 account only to pay for the final year in college, then the income rule would not make any difference, since the student will not be applying for financial aid for the following year.
- How can I select the right 529 plan if I donít know where my grandchildren will be attending college?
- What happens if I have money in a 529 account for a grandchild who later decides to not attend college?
- I would like to put some money towards my grandchildrenís college savings, but Iím worried about unplanned medical expenses or other financial needs I may have later on. Can I get my money back out of a 529 plan?
- Which investment option in the 529 plan should I choose for my grandchild?
- We have 16 grandchildren below college age. Should we set up a separate 529 account for each of them, or can we combine the savings into just one account?
- Instead of opening my own 529 accounts, can I just make contributions to the 529 accounts my children have already established for my grandchildren?
- How do Coverdell education savings accounts compare to 529 plans?
- If I ever need to go to a nursing home and apply for Medicaid benefits, will the 529 accounts I have set up for my grandchildren be counted as part of my assets?
- What happens to my 529 plan if I die or become incapacitated?
- Am I hurting my grandchildís eligibility for financial aid by putting money into a 529 plan for him?
- My tax adviser is recommending 529 plans as an estate-planning vehicle. What is the advantage?
- Iíve been making direct gifts to my grandchild each year into a custodial account (UTMA) with the understanding that those funds are to be used for college. Is there anything wrong with this approach?
- My estate planner tells me I can reduce my estate by paying my grandchildrenís tuition and not even have to worry about the gift tax. So why should I use 529 plans?