Where to report 529 plan distributions on 2025-2026 FAFSA? Confusing parent asset vs. student income
I'm helping my daughter fill out her FAFSA for 2025-2026 and we're completely stuck on how to report her 529 plan. We withdrew about $12,000 from her grandparent's 529 plan last year to pay for her first year expenses. I've read conflicting information about whether this counts as student income or a parent asset? The new FAFSA doesn't seem to have a specific question about 529 distributions, and the help text isn't clear. I don't want to mess this up and reduce her aid eligibility. Where exactly do we report these funds, and does it matter that the account owner is a grandparent rather than me or my daughter?
20 comments
Join the conversation
Jade Lopez
The good news is that with the 2024-2025 FAFSA changes (which carry through to 2025-2026), 529 plans owned by grandparents no longer negatively impact financial aid eligibility! This is a HUGE improvement over the old system. Here's what you need to know: 1. You DO NOT report grandparent-owned 529 plan distributions as student income anymore 2. Only 529 plans owned by the parent or dependent student should be reported as assets on the FAFSA 3. Since the account belongs to the grandparent (not you or your daughter), you don't need to include it anywhere on the FAFSA This is different from the old FAFSA rules where grandparent 529 distributions were counted as untaxed income to the student (which could reduce aid by up to 50% of the distribution amount).
0 coins
Arjun Patel
•That's such a relief! So I don't need to report the $12k withdrawal anywhere on the form? I was worried it would count against her somewhere and reduce her aid. Do you know if this applies to all schools, or do some schools handle 529s differently for their institutional aid calculations?
0 coins
Tony Brooks
i think u still report it as untaxed income. we had to do this last yr for my son and it lowered his pell grant by like $2000
0 coins
Ella rollingthunder87
•No, this is outdated info. The FAFSA Simplification Act changed this. As of 2024-2025 FAFSA, grandparent-owned 529 distributions no longer count as student income. This was a big change specifically designed to stop penalizing families for using grandparent 529 plans.
0 coins
Yara Campbell
This can be really confusing, I went through this last year. Here's what you need to understand: - If YOUR NAME is on the 529 account (as owner): It counts as a parent asset and only impacts aid by a maximum of 5.64% of the account value - If YOUR DAUGHTER'S NAME is on the 529 account: It counts as a student asset and impacts aid by 20% of the value - If GRANDPARENT owns the 529 account: With the simplified FAFSA, you don't report it at all! The key is WHO OWNS the account, not who benefits from it. Since your daughter's grandparent owns it, you're in the clear. Don't report it anywhere on the FAFSA.
0 coins
Arjun Patel
•Thanks for explaining the ownership aspect so clearly! The account is definitely in my father-in-law's name, with my daughter as the beneficiary. I was confused because the money went directly to her university from the 529 plan.
0 coins
Isaac Wright
Been trying to connect with FSA for 3 days to ask this exact question! Finally got through using Claimyr (claimyr.com) - they connect you directly to an agent without the crazy wait times. There's a video showing how it works: https://youtu.be/TbC8dZQWYNQ The agent confirmed what others are saying - grandparent-owned 529 plans are NOT reported on the FAFSA as of the 2024-2025 form. This is part of the FAFSA Simplification Act changes. Saved me from making a big mistake on our application!
0 coins
Maya Diaz
•Thx for the tip, been on hold forever trying to get answers about my daughter's situation. Will check out that service.
0 coins
Tami Morgan
THIS IS ALL WRONG!!! You absolutely DO report it as untaxed income to the student! I'm a financial aid counselor and the regulations clearly state that any money paid on behalf of the student counts as support. The 529 money went to pay for college, right? Then it's part of her untaxed income! DON'T LISTEN TO THESE PEOPLE TELLING YOU TO LEAVE IT OFF!!!
0 coins
Jade Lopez
•This information is outdated. The FAFSA Simplification Act specifically removed the requirement to report grandparent-owned 529 plan distributions as student income. This change took effect with the 2024-2025 FAFSA and continues for 2025-2026. The Department of Education confirmed this change specifically to encourage the use of grandparent-owned 529 plans without aid penalties.
0 coins
Tami Morgan
•You're right - I apologize! I was thinking of the old rules. The FAFSA Simplification Act did change this, and grandparent-owned 529 distributions no longer count as untaxed income to the student. Sorry for the confusion.
0 coins
Yara Campbell
One important detail nobody has mentioned - while the FEDERAL aid calculations (FAFSA) no longer count grandparent 529 distributions, some private colleges that require the CSS Profile may still ask about and count these funds in their institutional aid calculations. If your daughter is applying to private colleges that use the CSS Profile, you might need to report it there.
0 coins
Arjun Patel
•Good point! She's applying to State University which only requires the FAFSA, but also to two private colleges. I'll check if they require the CSS Profile and how they treat 529 plans from grandparents.
0 coins
Ella rollingthunder87
So glad I stumbled on this thread bc I was super confused abt the same thing!!! My grandma has a 529 for me and we couldnt figure out where to put it on fafsa. When I called the financial aid office at my school they said dont include it at all, but I wasnt sure if that was right. Makes way more sense now.
0 coins
Arjun Patel
•I'm glad this thread helped you too! It's surprising how little clear information there is about this major change.
0 coins
Maya Diaz
My son's girlfriend's dad works in financial aid and he says if the money went directly to the school from the 529 plan then the school already has record of it and will factor it in regardless of what the FAFSA says. Is that true?? Seems unfair.
0 coins
Jade Lopez
•That's not accurate. Schools receive information about payments made to them, but they don't use that information to recalculate federal aid eligibility outside of what's reported on the FAFSA. The federal methodology for calculating the Student Aid Index (SAI) is strictly based on FAFSA inputs, and if grandparent 529 distributions aren't reported on the FAFSA, they won't affect federal aid eligibility. Now, schools may use payment information for their own institutional aid decisions, but that's separate from the federal aid calculation.
0 coins
Arjun Patel
Thank you all for the helpful information! Just to summarize what I understand now: 1. Since my father-in-law owns the 529 plan (not me or my daughter), we don't report it anywhere on the FAFSA 2. This is a recent change with the simplified FAFSA that started with 2024-2025 applications 3. I should check if the private colleges my daughter is applying to use the CSS Profile and if they have different rules This makes a huge difference - we were worried her aid would be reduced significantly because of these funds. Really appreciate all your help!
0 coins
Jade Lopez
•You've got it exactly right! This is one of the most beneficial changes in the new FAFSA for many families. Best of luck to your daughter with her applications!
0 coins
Olivia Harris
Just wanted to add one more helpful tip for anyone dealing with this situation - make sure to keep good records of the 529 distributions even though you don't report them on the FAFSA. The IRS may still require documentation for tax purposes, and some schools might ask for verification of education expenses. Also, if your daughter receives any tax documents (like a 1099-Q) related to the 529 distribution, don't panic - this is just for tax reporting and doesn't mean it needs to go on the FAFSA. The tax treatment and FAFSA treatment are completely separate under the new rules.
0 coins