Welcome back to “College Corner”.  Our goal here is to help you develop your best college planning strategy by addressing the topics of tax planning, financial aid optimization, college selection and personal finances.  If you have a question please send it our way.  This week’s question tackles grandparent owned 529 plans and financial aid.

How will my Grandparent’s 529 Plan Impact my Financial Aid?   

In order to accurately answer the question we need to break this up into two parts, the 529 plan and the subsequent 529 distributions.  Schools that require the Free Application for Federal Student Aid, or FAFSA, do not require that you report grandparent owned 529 accounts.  For families that are eligible for need-based aid this can prove valuable as the 529 plan will not be included in the financial aid calculations. 

Distributions from grandparent owned 529 plans is a completely different story.  Any distribution from a grandparent owned 529 plan is considered “untaxed income” of the student and assessed at a rate of 50% of the student’s income above their $6,260 income allowance.    Paying the school directly or making a gift to the child does not change anything.  This can dramatically impact a student’s need-based financial aid and is something that parents should be well aware of.    

That being said having a 529 plan in the grandparents name can provide many benefits.  We already stated that the plan assets will not be included in the FAFSA calculation.  Schools that require the CSS Profile do report 529 plans where the student is the beneficiary, so be aware of which schools require which applications.  Proper timing can also negate the impact of plan distributions on financial aid.  Under the new Prior, Prior rules 529 distributions in the student’s junior or senior year of college will have zero impact in the aid calculation, provided they don’t attend graduate school.     

As you can see understanding how schools determine financial aid eligibility can prove valuable.  But this is just one part of college planning.  A comprehensive strategy should also cover college selection, tax aid and the best use of your personal resources.  Is your current advisor providing coordinated guidance in these areas?  If not find someone who can.  With some private schools now cost nearly $70,000 a year you can’t afford not to.   

About College Corner:  Our goal here is to help you develop your best college planning strategy by addressing the topics of tax planning, saving, financial aid optimization, college selection and personal finances.  If you have a question, please send it our way.

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About Tushingham Wealth Strategies

As a Certified Financial Planner, Tushingham Wealth Strategies acts as a Fiduciary for their clients. Our goal is to help physicians and executives proactively plan for their retirement by serving as their “Personal CFO”, so that they may live their ideal life worry-free. Our Personal CFO service will guide you in making smart financial decisions in areas such as "late-stage" college planning, tax mitigation and wealth management.

About Tushingham Wealth Strategies

Our goal is to help physicians and executives proactively plan for their retirement by serving as their “Personal CFO”, so that they may live their ideal life worry-free. Our Personal CFO service will guide you in making smart financial decisions in areas such as "late-stage" college planning, tax mitigation and wealth management.

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©2019 Tushingham Wealth Strategies, LLC

  5615 Old Garden Rd. Apt. 201, Wilmington NC, 28403

©2019 Tushingham Wealth Strategies, LLC

Tushingham Wealth Strategies, LLC is an Investment Adviser registered with the State of North Carolina.

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