Here’s How Your Grandchild Can Get Financial Aid With A College Savings Account
Written by
Nia Watson
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Grandparents looking to support their grandchildren’s future education can invest money into a 529 plan. This savings account gives users an easy route to start planning how they will fund their students’ college degrees. Unlike a brokerage account, the money grows tax-free.
Ready to open a 529 account? Here are the advantages that started this academic year.
In the past, one of the drawbacks was that leftover funds unused by students’ education were at risk of additional tax penalties. This meant using these funds for anything other than education could incur fees. Starting in the 2024-25 school year, grandparents can now move excess funds to a retirement account like a Roth IRA, according to a report from Ameriprise.
Another downside was that 529 contributions and cash gifts from grandparents used to be listed as untaxed income on a student’s Free Application for Student Aid (FAFSA) form. With this factor listed on the application, there was a chance that the potential aid offered could drop.
This year the U.S. Department of Education rolled out a series of changes. In line with the FAFSA Simplification Act, “cash support” and “any money paid on the student’s behalf” are now considered untaxed, as stated in a 2022 update from the Congressional Research Service. For those using the 529 plan, this change is the grandparent loophole.
The NY 529 College Savings Program lists all the benefits grandparents can utilize with this plan as an account owner, like low yearly costs for maintaining an account and no federal tax on gifts under $18,000 per year, on their website.
For larger families, there is also no limit to how many grandchildren can be supported.
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