Grandparent 529 plans are a great way to assist your family with future education costs and defer/eliminate investment income as well. Plans can be “super-funded” by spreading the gift over 5 years and reporting a 1/5 portion each year. There’s no concern that the fund gets “too large” because the beneficiary can continually be changed seamlessly to impact the next grandchild or even the next generation. 529 funds can also be used to fund K-12 tuition costs as well as qualified higher education costs.
Previous rules required that funds in 529 plans provided by grandparents (and others) were reported on the FAFSA in a way that could negatively impact financial aid eligibility. Changes effective for the 2024-25 academic year would effectively eliminate that penalty along with financial assistance from others outside the student’s household.
About 6,400 institutions use the FAFSA to apply for financial aid. An additional 200 mostly private colleges use the “CSS Profile”, including assets in all 529 plans where the student is the beneficiary regardless of ownership. Please see the following links for additional information and contact Baldwin CPAs to learn more about the personal tax implications related to 529 plans.
10 Rules for Superfunding a 529 Plan - Savingforcollege.com
What to Know About 529 Accounts Owned by Grandparents & the New FAFSA (savingforcollege.com)