I've heard it stated for several years (perhaps erroneously) that 529 plans (both regular and 529/UTMA) don't get included on the FAFSA finaid application.
However, I was just looking at the 2011-2012 application and its instructions and it clearly states that 529 plans (whether owned by the parents or by the dependent student) are to be included in the calculations.
Is that a new change?
-- Rich Carreiro snipped-for-privacy@rlcarr.com
"[The College Cost Reduction and Access Act of 2007 with an effective date of July 1, 2009] corrected a legislative drafting error in the Higher Education Reconciliation Act of 2005 which temporarily caused custodial qualified tuition accounts to be disregarded as assets on the Free Application for Federal Student Aid (FAFSA) in 2006-07,
2007-08 and 2008-09."This and other possibly relevant details appear at
Thanks for the answer. It is for this reason that grandparents and other relatives are excellent candidates for ownership of 529s.
Which brings me to a related question: Other than the gift tax rules, is there a problem with the parent gifting ownership to someone else?
I believe they are countable assets when it comes to medicaid eligibility. So you run the risk of grandma or grandpa spending your savings on a nursing home instead. And that the gift is irrevocable, but the 529 plan is revocable. Is some scamster gets hold of the grandparents, they could bilk them out of the money in the 529 plan.
I actually personally know of a case where the "financial planner" convinved the grandparents that they should turn over the funds to him, and he would deliver much higher returns than the 529 options ever could. Naturally it was mostly blown on options and derivatives trading in the investment manager's account.
YMMV of course, but this is in no way a no brainer.
One of the things which may have made this seem more confusing is that the rules for FAFSA treatment of 529s have, indeed, changed.
When the 529 was first introduced, it was considered an asset of the *child* not the parent at first. That was a terrible situation. Now it's considered an asset of the account owner (usually the parent), not the beneficiary. Yet at the same time, the assets in the 529 are not in the owner's estate. It's like magic!
It's not clear to me what the consequences are, nor, as far as I know, has it been tested. Contributions to a 529 are, for gift and estate tax purposes, considered a completed gift to the *beneficiary*. So a change in ownership in theory should not have any tax implications. Yet presents a theoretical loophole. Apparently some states have put rules in place to at least limit this by limiting changes in ownership to other family members similar to the limits in changes of beneficiary.
If anyone has experience with the treatment of changes in ownership, I'd really love to hear about it.
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.