👵Why grandparent owned 529 plans are more attractive than ever

Prior to the new FAFSA form which debuted in the 2024-2025 year, Grandparent owned 529s seemed to create more of a financial aid headache than they were worth.

Let’s throw it back to 2023! The way that financial aid did their calculations, taking a $10,000 distribution from one of these plans for making a tuition payment could effectively create a $5,000 financial aid penalty when it came to their grandchild’s financial aid calculation.

This created a messy situation. 529 accounts have always been a great way to save money for college, where investments grow tax deferred and can be taken out tax free when used for qualified education expenses. However, this wasn’t so great when taking distributions could effectively minimize financial aid eligibility.

All of this changed with the new FAFSA however, and while it feels like it’s been college planning’s best kept secret, there is effectively no financial aid penalty on this year’s FAFSA form for grandchildren who benefit from a grandparent owned 529 college savings plan.

This is huge news for families where the grandparents did their part in the savings department. Money grows tax deferred, comes out tax free and there’s no financial aid penalty. This is huge!

But what’s the catch here? All the notes above ring true, however it does need to be mentioned that this “no financial aid penalty status” only applies to schools that are FAFSA only.

Many private institutions use an additional financial aid form called the CSS Profile. This form did not move ahead with the changes mentioned on the FAFSA, and therefore grandparent owned 529 assets are still a factor in these schools’ student financial aid calculations.

Do you have questions about how grandparent owned 529 accounts may impact your situation? Feel free to reach out. I’m happy to help.

All the best,

Andrew Holmes, Certified College Planning Specialist™

Andrew@PlanWithFPS.com

617-630-4978

Check out my whitepaper: 5 College Planning Mistakes to Avoid

Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.

Sources: https://www.savingforcollege.com/article/new-fafsa-removes-roadblocks-for-grandparent-529-plans