Ask Kim


Limit the Impact of Grandparent-Owned 529 Plans on Financial Aid

Kimberly Lankford

Follow these strategies so withdrawals from a college-savings account don't hurt your student's chances for aid.



My mother has a 529 for my daughter, who will be going to college soon. Will her 529 affect my daughter’s chances for financial aid?

SEE ALSO: 7 Smart Ways to Pay for College

A grandparent-owned 529 college-savings plan is not reported as either a parent’s or a student’s asset on the Free Application for Federal Student Aid (FAFSA). But distributions from the 529 must be reported as student income on the next year’s FAFSA, and students are expected to contribute 50 cents of every dollar of income toward the college bills (after an allowance of about $6,000.)

To minimize the impact, you could wait to withdraw money from the grandparent-owned 529 until the last financial aid form has been filed, after January 1 of your daughter’s junior year of college. Or find out whether you can switch the owner to a parent. Assets in parent-owned 529s are tapped at up to 5.6%, after an allowance, but withdrawals are not reported as income. Some 529 administrators, including TIAA-CREF, let you switch account owners by filling out a form. Others, such as Fidelity, don’t permit such transfers. If yours doesn’t, you can transfer the money to a 529 that lets you switch the owner from the grandparents to the parents. See SavingforCollege.com for more information about each state’s rules.

Got a question? Ask Kim at askkim@kiplinger.com.



Editor's Picks From Kiplinger


You can get valuable updates like Ask Kim from Kiplinger sent directly to your e-mail. Simply enter your e-mail address and click "sign up."

More Sponsored Links


DISCUSS

Permission to post your comment is assumed when you submit it. The name you provide will be used to identify your post, and NOT your e-mail address. We reserve the right to excerpt or edit any posted comments for clarity, appropriateness, civility, and relevance to the topic.
View our full privacy policy


Advertisement

Market Update

Advertisement

Featured Videos From Kiplinger