What 529 plans mean to college aid

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Q. I’m starting a 529 plan for my grandson but I’m not sure if I should be the owner or if my daughter should be. She has had a history of bad debts in the past and I want to make sure the money is safe, but I also don’t want to make a bad choice for financial aid purposes. What should I do?
— Granny

A. It’s a wonderful thing you want to do for your grandson.

The rising cost of a college education is so daunting, and whatever you do will certainly make a difference — especially if you’re not confident in your daughter’s ability to save.

Let’s take a look at how 529 plans are considered in the world of financial aid.

These assets are specifically asked for on the Free Application for Federal Student Aid, or FAFSA, said David Slater, co-founder of College Benefits Research Group (CBRG) in Roseland.

He said they’re included on the FAFSA based on ownership.

“If the 529 assets are owned by the student or custodial parent, they are in fact includable in the financial aid calculation,” Slater said.

But if someone other than the student or the custodial parent own the 529 — you — then the 529 value would not be includable in the FAFSA Expected Family Contribution (EFC) calculation until the funds were withdrawn and spent on the student’s education, Slater said.

It is important consider that some schools require additional financial aid forms, such as the CSS Profile, because they assess any assets that are to be used for the benefit of the student.

Your strategy of owning the 529 plan provides you with the control you want as well as the tax benefit, but could also have a potential downside, Slater said.

“Although 529 funds would be out of your grandson’s financial aid calculation on the FAFSA, it may only help for his first year of school,” he said. “When you withdraw the money to pay for his school, it would then be assessed as an income source to the student for the following year, which could result in a decrease in need based financial aid going forward.”

So yes, saving for college can be tricky.

Slater said products used for college savings each have their benefits and pitfalls and should be looked at in the context of each family’s overall financial plan.

Consider sitting down with a qualified advisor to help evaluate which best fits your particular student and family situation.

Email your questions to moc.p1610807579leHye1610807579noMJN1610807579@ksA1610807579.

This post was first published in February 2018.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.