When families save for college, one common question is how those savings might affect a student’s eligibility for financial aid. In a recent NJMoneyHelp article, Darren Zagarola, CFP®, CPA/PFS, addressed a question about a grandparent-owned 529 plan and how it would be treated on the FAFSA.
In his response, Darren explains that assets held in a grandparent’s name generally do not reduce a student’s eligibility for need-based aid. He notes that while it is often preferable for a parent rather than a child to own a 529 plan, grandparent ownership can provide an advantage during the initial FAFSA filing process.
However, Darren also points out that distributions from a grandparent-owned 529 plan were treated differently under the FAFSA rules in effect at the time. Payments made from the account could impact the student’s income calculation and reduce future aid eligibility. Because FAFSA reviews income from two years prior, Darren explained that carefully timing distributions could help minimize the impact.
Specifically, he suggested waiting until January of the student’s sophomore year of college to use funds from a grandparent-owned 529 plan, as those distributions would not need to be reported on a future FAFSA.
You can read Darren’s complete response in the original NJMoneyHelp article: How Will This 529 Plan Count on the FAFSA?
If you’d like to learn more about Darren and how he helps families navigate education funding decisions and other financial planning questions, be sure to visit his advisor profile.
