{"id":271,"date":"2022-09-07T14:13:27","date_gmt":"2022-09-07T14:13:27","guid":{"rendered":"https:\/\/collegeaidpro.com\/?p=271"},"modified":"2022-10-27T13:23:24","modified_gmt":"2022-10-27T18:23:24","slug":"grandparents-and-529-college-savings-plans-what-you-need-to-know","status":"publish","type":"post","link":"https:\/\/collegeaidpro.com\/grandparents-and-529-college-savings-plans-what-you-need-to-know\/","title":{"rendered":"Grandparents and 529 College Savings Plans: What You Need to Know"},"content":{"rendered":"

Grandparents want to help. They see the expense ahead for their kids to pay for college education for their grandkids. The goal for everyone is to help the student get a great education, graduate with little or no debt, and live a fulfilling life. Many grandparents choose to open a 529 college savings plan to help pay for college, and they need to be aware of a few things.<\/span><\/p>\n

A 529 plan can be an appealing option to help save and is<\/a>, by and large, the best tool to do so. Grandparents can make one time deposits up to $75,000 each per child without running into gift tax penalties. (The $15,000 gift maximum per year is considered to be spread out over a five year period.) Moving money in this way is a great estate planning tool for grandpa and grandma. <\/span><\/p>\n

When the Tax Cuts and Job Act became law, the federal estate and gift tax limit was raised to $11,180,000 per person. If you have that kind of money, paying for college is pocket change. However, all grandparents can take advantage of the tax benefits of 529 plans, like tax-free withdrawals when used for qualified education expenses, tax-deferred growth of the investment, and possible state tax deductions for the grandparents.<\/span><\/p>\n

The most important consideration?<\/b><\/h2>\n

For grandparents wanting to open 529 plans for their grandchildren, the most important consideration is the potential impact on the student\u2019s financial need. Most colleges use the <\/span>Free Application for Federal Student Aid or FAFSA<\/span><\/a> to calculate financial need or the expected family contribution based on the income and assets of the parents and the student, so that is what we will focus on in this article. <\/span><\/p>\n

When filling out the FAFSA, the ownership of the 529 determines how and if that 529 money is a factor in determining financial need. This impact could cause the student to lose financial aid they might have otherwise been entitled to. <\/span>(If the student will NOT qualify for need-based financial aid, then grandparents do not have to worry about these considerations.)<\/b><\/p>\n

If the 529 is owned by the custodial parent or the dependent student, the plan is reported as an asset of the parent on the FAFSA. When owned by an independent student, the assets are reported as the student\u2019s assets. When the 529 is owned by the grandparents (or anyone else for that matter), FAFSA does not view the 529 as an asset, but the distributions are considered untaxed income for the student (or beneficiary) and will be assessed a higher percentage in the FAFSA calculation.<\/span><\/p>\n

What does all this mean? <\/b><\/h2>\n

It is important to understand that every 529 plan has one owner and one beneficiary. The owner of the 529 controls all distribution of the funds and even retains the ability to change the beneficiary on the account to another family member. <\/span><\/p>\n

Let\u2019s use an example of $10,000 as the 529 asset amount to illustrate.<\/p>\n