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Grandparents
Does a 529 plan count against eligibility for financial aid?
Simply owning a 529 account for your grandchild will not affect your grandchild's 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 year's 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.
Grandparent FAQs
- How to pick 529 plan if future college is unknown
- What happens to 529 plan money if child does not go to college?
- Can I withdraw money from a 529 plan for unplanned emergencies?
- Which 529 plan investment options should I choose?
- Should I set up a separate 529 plan for each child?
- Can a grandparent contribute to a parent-owned 529 plan?
- How do Coverdell education savings accounts compare to 529 plans?
- Do 529 plans count against Medicaid benefits?
- What happens to my 529 plan if I die or become incapacitated?
- Does a 529 plan count against eligibility for financial aid?
- What are the estate-planning benefits of 529 plans?
- Is giving money to a custodial (UTMA) account a good idea?
- Paying tuition directly avoids gift tax, so why use a 529 plan?
Learn about 529 plans
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