🎓 How will a 529 plan from a relative affect financial aid?

You're navigating a real tension: helping family with education costs without accidentally tanking their financial aid eligibility. As one r/personalfinance user shared, they have $80,000 saved for their daughter and sister, but their mom is low-income. Who owns the account matters.

Under the new FAFSA rules, a 529 plan owned by a sibling, aunt, or grandparent is completely shielded from financial aid calculations. Let's see how much aid you save by keeping the 529 in your own name rather than transferring it to the student or their parents.

The first step is deciding how much you're contributing. The Reddit user had $80,000 total, but split it between multiple family members. Enter the amount you plan to dedicate specifically to the student in question.

Because FAFSA is filed annually, an asset is penalized every year on its remaining balance. A $40,000 fund spent evenly over 4 years gets assessed on $40k, $30k, $20k, and $10k. This subjects a cumulative $100,000 to FAFSA's asset formulas.

FAFSA penalizes different assets at different rates. Student-owned cash is hit the hardest at 20% per year. Parent-owned 529s are assessed at up to 5.64%. Third-party 529s (like those owned by a sibling) are now assessed at 0%.

If the student's parents earn under $60,000 and file a simple tax return, they might qualify for an asset reporting exemption. This means a parent-owned 529 would not hurt their aid either.

For further related reading, check out:

• Reddit