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Should parent — or grandparent — own 529 plan?

By Terry Savage on December 22, 2018 | College Savings / Student Loans

I’m still confused – is it better to put college savings accounts in my name, my kids’ names or my grandkids’ names in respect to impact on student loan financing?

Terry Says

OK, I’ve answered this several times.

You can’t put it in the child’s name — by definition — because the child is a minor. (And any other money in a child’s custodial account will weigh very heavily against the family in the financial aid formula — not to mention that at age 18 in many states, the money belongs to the Child!)

If you put it in the 529 in an account with the PARENT as custodian,  that money will be considered in the financial aid formula — but only with a very low weighting.  It will, however, impact the amount or type of aid that is granted.

If the grandparent owns it for the child, it does not have to be disclosed on the FAFSA (financial aid) applications.  BUT when the money is eventually distributed to pay for college, it will be considered a child’s asset.  Then the next year, the amount of aid will be substantially reduced!

SO, IF THERE IS A 529 IN THE GRANPARENT’S NAME, THE MONEY SHOULD ONLY BE DISTRIBUTED IN THE LAST YEAR OF COLLEGE.  That way, there will be no impact on financial  in the following year.   AND, the money cannot be used tax-free to pay off student loans.

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