PSA: Your kids' 529 plan might hurt their college aid chances way more than you think

I was talking to my neighbor Carol last week, she works in financial aid at a community college near us in Phoenix. She told me how families with 529 accounts in the parent's name can actually cut their kid's federal aid by like 20-30% because it counts as a parental asset. But here's the thing she said nobody talks about - if a grandparent owns the 529, withdrawals count as untaxed income to the student and can slash aid even worse. My daughter's applying to ASU next fall and I had no clue until Carol explained it. I'm planning to just move the money to a Coverdell or use the parent-owned 529 and spend it before FAFSA year. Has anyone dealt with this where the grandparent's 529 messed up their kid's aid package?

2 comments

2 Comments

park.troy27d ago

Another angle nobody talks about is timing a 529 withdrawal to hit after the FAFSA lookback period for the student's income. Grandparent-owned 529s only kill aid if you take the money out during the FAFSA base year, so withdrawing it junior year of high school or later can dodge that hit entirely. Just check the exact lookback window for your daughter's FAFSA year at ASU before you touch it.

the_lucas27d ago

Yeah @park.troy, that trick saved us when my nephew’s 529 hit during junior year instead of the base year.