New FAFSA Guidelines Make Grandparent Owned 529s More Attractive
Whether you're a grandparent or have blessed your parents with the joy of grandchildren, this update
is tailored just for you!
Recent adjustments to the FAFSA (Free Application for Federal Student Aid) guidelines have
significantly boosted the appeal of 529 savings plans owned by grandparents (or other relatives:
Aunts, Uncles etc) for college funding. Here's a breakdown of how these plans are treated as assets
under the current rules for the 2024/25 school year:
● Grandparent-owned accounts: A 529 plan under the grandparents' name, or any relative other
than the student or their parents, doesn't affect the student's FAFSA at all.
● Student-owned accounts: The student's 529 plan is considered part of their personal assets,
with the Student Aid Index (SAI) — formerly known as the Expected Family Contribution (EFC)
— being calculated at 20% of the account's value.
● Parent-owned accounts: Up to 5.64% of the 529 account value is included in the SAI
calculation. Student Aid Index (SAI)
Prior to the 2024-25 academic year, withdrawals from a grandparent-owned account were treated as
the student's income, affecting the FAFSA by up to 50%. The revised guidelines have eliminated this
issue, making grandparent-owned 529 plans a much more attractive option.
Key Points to Consider for Grandparent-Owned 529 Plans:
● Contributions up to $18,000 per beneficiary are eligible for the annual gift tax exclusion in
2024. For married grandparents, a joint contribution of $36,000 won't be counted towards
their taxable estate.
● Grandparents can "superfund" a 529 Plan, spreading a lump-sum contribution of between
$18,000 and $90,000 over five years to maximize their gift.
● If the student might attend a private college, be cautious. Many such institutions use the CSS
profile, which could still negatively impact financial aid eligibility if the grandparents own the
529 account. A comprehensive list of colleges using the CSS can be found online at
https://profile.collegeboard.org/profile/ppi/participatingInstitutions.aspx
● In California, where we're based, there's no income tax deduction for 529 contributions.
However, some states offer this deduction. It's crucial to understand your state's regulations
and whether grandparents are eligible for these deductions. Also, consider whether it's worth
forgoing the parents' tax benefits.
https://www.savingforcollege.com/compare-529-plans/state-tax-deductions
● Trust is paramount. Not all parents may manage finances responsibly. Before deciding to
place a 529 in someone else's name, reflect on the potential loss of control over the funds
intended for your grandchild's education.
Should you have further inquiries about college savings or know someone who could use this
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