A 529 college savings plan account that is owned by the student or the student’s parent must be reported as an investment asset on the Free Application for Federal Student Aid (FAFSA). Distributions from such a 529 plan are not reported as income on the FAFSA.
Does money in 529 affect financial aid?
The 529 plans owned by college students or their parents count as assets and reduce need-based aid by a maximum of 5.64 percent of the asset’s value. However, withdrawals from a 529 plan held by the non-custodial parent will be assessed as income against financial aid, just like those held by grandparents.
How does a 529 plan affect your child’s financial aid?
Your child’s eligibility for federal financial aid this year will decrease by no more than 5.64% of the account value, or $1,128 ($20,000 x 5.64%). Assume there is no further appreciation in the account and you withdraw $5,000 in the fall to pay for the first semester college bills.
Are there any drawbacks to a 529 plan?
A 529 plan could mean less financial aid. The largest drawback to a 529 plan is that colleges consider it when deciding on financial aid. This means your child could receive less financial aid than you might otherwise need.
Do you have to report 529 income on FAFSA?
Earnings in a 529 plan, however, do not have to be reported on the FAFSA and will have zero affect on financial aid. 529 plan distributions are another area where the impact on financial aid will depend on the account owner. With a parent- or student-owned plan, 529 withdrawals used to pay for college will not be reported on the FAFSA.
What happens if a grandparent has a 529 plan?
But the situation gets a little stickier when the account is owned by a grandparent or other relative. The student will have nothing to report on the FAFSA while the money is sitting in a grandparent-owned 529 plan, but any withdrawals used to pay for their college will be counted as untaxed income on the FAFSA.
