Anyone who has a college aged child knows there were big changes to the FAFSA (Free Application for Federal Student Aid) this year. The rollout has been a little bumpy. Lost amid the complaints is a nuanced change to the optimal way to save for college. The new calculations do not penalize you for distributions from grandparent owned 529 plans (the old rules did). That means it’s now better for grandparents to own the 529 plan account than it is for the parents to own it. Assets in a parent-owned account count against the student in the aid formula. Grandparent-owned plans do not.

Here are my takeaways:

  • If you’re opening a new account for a grandchild, I’d put a grandparent down as their account owner.
  • If you’ve already got 529 plan accounts set up in the parents’ name, it may not make sense to change it. I own my girls’ accounts. I’m in no rush to change this because it’s another 13 years until my oldest hits college. They’re almost certain to change the rules again before then. Plus, my parents will be in their eighties at that point. I should be taking financial tasks off their plate (when they’re interested), not giving them more.
  • If the student is at or near college age, it’s worth considering an owner change. We would need to review the details with you to see if it’s worth changing. There may or may not be a benefit.

Of course, the FAFSA should only be one consideration in how you save for college. In your situation, it may make more sense for the parent(s) to control the account, manage disbursements, etc. Let me know if you want to talk through your options.

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.