How 529 Ownership Impacts College Financial Aid: What Families Need to Know

We talk about 529 accounts all the time — tax-free growth, qualified education expenses, rollover options, and the long-term benefits of starting early.

But one part of the conversation is rarely addressed:

Who owns the 529 account, and how that ownership structure can significantly affect financial aid eligibility.

This came up today with a client whose child is applying for college scholarships and need-based aid. It was a reminder that ownership can matter just as much as contribution strategy.

Below is a clear, structured breakdown of how different ownership types impact aid.

1.) Parent-Owned 529 Plans

Commonly used and the most straightforward for aid planning.

FAFSA Treatment

Counted as a parent asset
Assessed at a maximum rate of 5.64%
- Example: A $10,000 balance may reduce aid by approximately $564

Withdrawals

Not counted as student income
Important because student income carries a higher assessment in aid formulas

Overall Impact
Low. Parent-owned plans are generally considered aid-friendly.

2.) Student-Owned 529 Plans

Often created when a UGMA/UTMA account is converted into a 529.

FAFSA Treatment

Treated as a parent asset when the student is still a dependent
Same 5.64% assessment as parent-owned accounts

Withdrawals

Not counted as student income

Overall Impact
Low, and effectively the same as parent-owned plans under current FAFSA rules.

3.) Grandparent-Owned 529 Plans

Historically the most complex category, but recently changed in a positive way.

Previous Rules

Distributions counted as student “untaxed income,” which could substantially reduce aid

New FAFSA Rules (2024 and beyond)

Not reported as an asset
Withdrawals not treated as income
No adverse effect on aid eligibility

Overall Impact
Zero impact on FAFSA. These accounts can now be highly advantageous when planned correctly.

4.) CSS Profile Schools (Common Among Private Colleges)

This is the one area where treatment varies by institution.

CSS Treatment

Parent-owned 529: treated as a parent asset
Student-owned 529: treated as a student asset, which may carry a higher impact
Grandparent-owned 529: may be categorized as “outside resources” once funds are used

Overall Impact
Case-specific. Families should ask each institution how various 529 ownership structures are evaluated.

5.) Planning Strategies That Improve Outcomes

Use parent-owned funds first
These dollars have the most predictable and lowest aid impact.

Use grandparent-owned funds strategically

FAFSA-only schools: strong planning advantage
CSS Profile schools: often best reserved for later years or coordinated with financial aid offices

Be intentional about timing
Withdrawals from the wrong owner at the wrong time can reduce eligibility for need-based aid.

Align ownership with strategy
The structure of the account should support — not undermine — the family’s financial aid and college funding plan.

Final Thought

529 plans provide excellent tax benefits, but the planning shouldn’t end there.
Ownership, timing, and the type of college all influence how much aid a student may receive.

Families who coordinate these elements thoughtfully are better positioned to maximize both financial aid opportunities and the value of their 529 savings.

Learn More

IRS.gov – https://www.irs.gov/newsroom/529-plans-questions-and-answers

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