The Grandparent 529

With changing rules, grandparents that want to help grandchildren with the cost of college can now get more bang for their buck.

As part of an overhaul of the Free Application for Federal Student Aid (FAFSA) for the 2024-2025 academic year, a grandparent can now assist a grandchild without penalizing the student’s eligibility for federal student aid.

Currently, if a grandparent contributes to a 529 (even if that 529 is owned by the grandparent), those funds are considered to be an Expected Family Contribution. The assumed contribution is then deducted from a student’s overall federal aid eligibility.

In the near future, any outside contributions from grandparents as well as aunts, uncles, godparents or even the wealthy neighbor will be removed from reporting on the FAFSA. This means that those individuals can contribute to their own 529 plan without worrying about the effect on the future student.

By setting up their own 529s, grandparents can

• Not penalize the student for 529 balances after the 2023/2024 school year

• Take advantage of the tax benefits offered by many states directly

• Retain control over the use of the 529

So if you are a grandparent or know a grandparent that would like to help your children with college, it might be a good time to discuss setting up a separate 529 that they can fund directly and not just contributing to your child’s 529 (or hiding cash under the mattress).