Do 529 distributions need to be reported on FAFSA? Also, adding grandkids to existing plan?
I'm confused about FAFSA reporting for 529 distributions. I have a college savings 529 plan for my grandson (I'm the account owner). We didn't include it on his FAFSA since I own it, not him. Yesterday a financial advisor at my bank told me that once money from the 529 is actually withdrawn and used for his education, those distributions MUST be reported as untaxed income to the student on next year's FAFSA. This doesn't sound right to me - I thought 529 distributions for qualified education expenses weren't reportable income? Also, my son just had twin girls last month (yay!), and I'm wondering if I can just add them as beneficiaries to the existing 529 plan, or if I need to open separate accounts for each grandchild? Any help appreciated - feeling overwhelmed by all these FAFSA and college savings rules!
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Evan Kalinowski
Congratulations on the twin girls! Regarding your 529 question - your instinct is correct. Qualified distributions from a grandparent-owned 529 plan are NOT reported as income on the FAFSA under the new FAFSA Simplification Act rules effective for the 2024-2025 award year and beyond. This is actually a recent positive change - under the old rules (before the 2024-2025 FAFSA), grandparent-owned 529 distributions used to be reported as untaxed income to the student, which could reduce aid eligibility by up to 50% of the distribution amount. As for adding beneficiaries, yes, you can easily add your granddaughters as beneficiaries to your existing 529 plan. Most plans allow multiple beneficiaries, though only one can be active at a time. You simply contact your 529 plan administrator and request to add additional beneficiaries. When it's time for one of your granddaughters to use the funds, you'd change the active beneficiary to that child.
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Victoria Charity
•YEah but dont u have 2 report it as a gift or somthing? I have a 529 for my niece and I had to check some box about gift tax when I put $ in it last yr. does that effect fafsa?
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The Boss
•Thank you for confirming! That's exactly what I thought, but the advisor was so insistent that I started doubting myself. These FAFSA changes are really confusing for everyone it seems. Do you know if I need to keep any specific documentation of the 529 withdrawals just in case there are questions during FAFSA verification?
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Jasmine Quinn
Your bank advisor is WRONG!! I just went through this exact scenario with my grandkid this year. Grandparent 529 plans are completely invisible on FAFSA now!!! That changed with the new FAFSA for 2024-25. They used to count as student income when distributed (which was TERRIBLE for aid eligibility) but now they don't ask about it at all!!! For your other question - I have ONE 529 with multiple grandkids listed as beneficiaries. Works great! You just assign portions to each kid when they need it.
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Oscar Murphy
•This is accurate. The FAFSA Simplification Act removed the requirement to report distributions from grandparent-owned 529 plans. These distributions no longer impact a student's financial aid eligibility. The benefit of adding multiple beneficiaries to one 529 plan is flexibility, but some states offer state income tax benefits for contributions that might be maximized by having separate accounts. You should check your state's specific rules if state tax benefits are important to you. Also, keep in mind that while the FAFSA doesn't consider grandparent-owned 529 plans, some private colleges that require the CSS Profile may still ask about these assets and distributions in their institutional methodology.
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Nora Bennett
I work in financial aid at a university, and I can tell you that your bank advisor is mixing up old rules with new ones. Under the simplified FAFSA (2024-2025 and beyond), distributions from grandparent-owned 529 plans are NOT reported anywhere on the FAFSA. This is a significant change from prior rules. However, I always advise families to keep documentation of all 529 withdrawals and matching qualified education expenses, as this documentation is important for tax purposes and could be needed if there's ever an audit or verification process. Regarding adding beneficiaries - yes, you can add your new granddaughters to your existing 529. One account can have multiple beneficiaries, though you'll need to designate which beneficiary is active when making withdrawals. Some families prefer separate accounts for each child for organizational purposes or if they live in states where they get tax benefits for contributions (which might have per-account limits).
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Ryan Andre
•This is super helpful! I have a similar situation but with a slight twist - if my brother is the owner of a 529 for my daughter (his niece), does the same rule apply? It's not a parent or grandparent owned account technically.
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Nora Bennett
•Yes, any 529 plan owned by someone other than the student or the student's parent/guardian is treated the same way under the new FAFSA rules. So your brother's 529 plan for your daughter would follow the same rules as a grandparent-owned 529 - it's not reportable as an asset on the FAFSA, and distributions from it don't count as student income either. The only 529 plans that need to be reported on the FAFSA are those owned by the student or the student's parent/guardian (and these are reported as parent assets, which have a much smaller impact on aid eligibility than student income did under the old rules).
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Lauren Zeb
I've been trying to reach someone at Federal Student Aid for THREE WEEKS to ask this exact question and couldn't get through!!! The phone wait times are ridiculous. Finally I used a service called Claimyr (claimyr.com) that got me connected to an FSA agent in about 10 minutes. They have a video showing how it works: https://youtu.be/TbC8dZQWYNQ Anyway, the FSA agent confirmed what others are saying here - grandparent 529 distributions do NOT need to be reported on FAFSA anymore. The agent told me this was one of the biggest positive changes in the new FAFSA Simplification Act specifically to encourage more family members to help with college costs without penalizing the student's aid eligibility.
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Ryan Andre
•Does this service actually work? The FSA website has been a nightmare with all the new FAFSA changes and I've been on hold forever trying to figure out if my daughter's special circumstance appeal form was received.
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Lauren Zeb
•It worked great for me! I was skeptical too, but I was desperate after being on hold for hours across multiple days. They basically dial through their system until they get a real person, then call you to connect. Saved me so much frustration.
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Victoria Charity
My kid's financial aid officer told us to never touch grandparent 529s until senior year of college because it messes up FAFSA!!! Is that old advice now????
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Oscar Murphy
•Yes, that's outdated advice based on the old FAFSA rules. Under the old system (prior to 2024-2025), grandparent 529 distributions were reported as untaxed income to the student on the FAFSA, which could reduce aid eligibility by up to 50% of the amount distributed. The strategy then was to wait until after the final FAFSA was filed (typically in senior year) to use grandparent 529 funds, since those distributions wouldn't appear on any future FAFSAs. With the new FAFSA Simplification Act changes, grandparent-owned 529 distributions are no longer reported anywhere on the FAFSA, so this timing strategy is no longer necessary. You can use grandparent 529 funds at any time during the student's college career without affecting FAFSA-based aid eligibility.
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The Boss
Thank you all SO much for the helpful responses. I'm relieved to hear that my instinct was correct about not reporting the 529 distributions on the FAFSA. I'll definitely keep documentation of all withdrawals and matching expenses for tax purposes as suggested. I'm also going to contact my 529 plan administrator next week to add my twin granddaughters as beneficiaries to the existing account. Based on your advice, a single account with multiple beneficiaries seems to be the simplest approach for now. I'm actually a bit annoyed that my bank's financial advisor gave me incorrect information that caused unnecessary stress. Makes me wonder what other outdated advice they're giving to clients about the new FAFSA...
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Nora Bennett
•Unfortunately, this happens quite often - financial advisors who don't specialize in education planning aren't always up-to-date on the latest FAFSA changes. The 2024-2025 FAFSA simplification has been particularly confusing for many professionals. One additional tip: When you add your granddaughters as beneficiaries, consider how you might eventually allocate funds between the three grandchildren. While you don't need to decide this now, it's good to think about whether you want to split the funds equally or based on each child's actual college costs when the time comes. Your 529 plan administrator can explain the process for partial account distributions to different beneficiaries when that time arrives.
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Jasmine Quinn
So glad you got the right info!!!! Those bank advisors dont know NOTHIN about FAFSA rules, they just trying to sell you investment products!!!! I learned long ago to never trust them with college planning advice!!!! They told my daughter some garbage about private loans being better than federal ones which is TOTALLY FALSE for most people!!!
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Daniel Washington
wait im confused. so if my parents have a 529 for my kids do they report it on fafsa or not?
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Evan Kalinowski
•If your parents (the grandparents) own a 529 plan for your children (their grandchildren), then: 1. The 529 is NOT reported as an asset on the FAFSA 2. Distributions (withdrawals) from the 529 are NOT reported as income on the FAFSA The only 529 plans that need to be reported on the FAFSA are those owned by either: - The student themselves - The student's parent/guardian And even in those cases, they're just reported as parental assets, which have minimal impact on aid eligibility (only about 5.64% of the value affects the aid calculation).
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Ryan Andre
I went thru this with my tax guy last month. He said that for tax reporting purposes (not FAFSA), qualified 529 distributions aren't taxable income for anyone, but you still have to report them on Form 1099-Q. The tax form goes to whoever receives the money (usually the account owner or the student). Just something to keep in mind for tax season.
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Javier Garcia
This is such valuable information! As someone new to navigating college savings and FAFSA, I'm really grateful for this discussion. It's reassuring to see that the FAFSA simplification actually made things better for families with grandparent-owned 529 plans. I'm curious though - for those of you who have been through this process, do you have any recommendations for staying up-to-date on FAFSA rule changes? It sounds like even financial professionals are struggling to keep current with all the recent changes. Are there reliable resources you trust for accurate, current information about college financial aid rules? Also, congratulations on the twin granddaughters! What an exciting (and financially planning-intensive) addition to the family!
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