Does a 529 plan affect financial aid?

Saving for college reduces student loan debt at graduation and increases college choice. But it can also affect eligibility for need-based financial aid. Depending on who owns the 529 plan account, a 529 college savings plan may affect either the income or the assets reported on the Free Application for Federal Student Aid (FAFSA).

Do 529 withdrawals affect FAFSA?

Withdrawals from a 529 plan used for qualified education expenses do not count as income on the FAFSA, thereby not affecting the financial aid calculation in the subsequent year. However, if grandparents or others own the 529 plan, distributions can be counted as untaxed student income, potentially reducing aid eligibility.

How does a 529 account affect a child's financial aid?

A parent’s assets are calculated at the most favorable rate. Meaning, they are expected to contribute a smaller portion of their assets, and the child would be eligible for more financial aid. A student owns a 529 account. The 529 plan would be counted under the student’s assets.