A reader of Ask NJ Money Help asked:

I am a grandparent with a 529 plan for my grandchild. I understand that the parents owning the 529 plan is the best way to get tuition aid and scholarships without any reduction because of New Jersey tax laws. When is the best time to transfer the ownership to the parents? ~ Grandparent

First, let’s clarify. It’s more beneficial to keep the money in the grandparent’s name.

Here’s why.

Assets in a child’s name reduce needs-based aid by 20%, while assets in a parent’s name reduce needs-based aid by 5.64%, said Darren Zagarola, a certified financial planner and certified public accountant with EKS Associates in Princeton.

“Assets in a grandparent or other family member’s name do not reduce need-based aid. Therefore, it is better for a parent to own the 529 plan than the child,” he said. “But for the first year of FASFA filing, it is best for a grandparent or other family member to own the 529 plan.”

Zaragola said payments from a 529 plan owned by the parents do not impact base year income. But, payments from the grandparent’s 529 plan could impact the student income portion of the FASFA after the first year because every dollar paid from the 529 plan counts reduces aid eligibility by 50%, he said. For example, a $5,000 payment from the 529 plan reduces aid eligibility by $2,500.

“The news is not all bleak as FASFA looks at income from two years prior, therefore it would be beneficial to have the grandparents or other family members pay the tuition in later years,” he said.

So he recommends your 529 plan funds be used no earlier than the second semester of the sophomore year because with that timing, the funds won’t have to be reported on a FAFSA.

This article originally published on NJMoneyHelp.com and was syndicated on NJ.com.