What’s the best way for a grandparent to set up a 529 plan?

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Q. Can a grandparent set up a 529 plan and wait until January of the child’s sophomore year to distribute the funds to avoid any impact on financial aid?
— Grandparent

A. It’s smart to plan ahead so you don’t impact any financial aid for college.

Generally, grandparents can set up 529 accounts and they do not count towards the family contribution when applying for aid, said Kenneth Van Leeuwen, a certified financial planner with Van Leeuwen & Company in Princeton.

As you noted in your question, the caveat is when a grandparent distributes the funds from the 529 to the student.

When this happens, it is considered income to the student, and students must contribute 50% of their income for education, Van Leeuwen said.

“By delaying the distributions until January of their sophomore year, it will not impact the amount of aid the student receives, assuming they graduate in four years,” he said. “If they go longer than four years, then the distribution in their sophomore year will count as income in the ladder years, and may impact the amount of aid received.”

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This story was originally published on Dec. 15, 2020.

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.