Why Grandparents Should Be Involved in College Planning

When creating a college plan, it is a good idea to include grandparents early in the planning process. College is a big expense, so having a village can be helpful!

Talking about money can feel uncomfortable. Grandparents may be reluctant to offer their support because maybe they are not sure of the best way to help or perhaps, they are not sure if their support is needed. On the other hand, parents may feel uncomfortable asking grandparents to quantify their commitment, it feels like asking for money (yuck!). The lack of communication leaves uncertainty and a missed opportunity to potentially reduce the cost of college and have a solid college plan. If you are a grandparent or parent out there reading this, I encourage you to be brave and start the conversation with your family!

There has been a major rule change regarding grandparent owned 529 plans which has completely flipped the script.

The Old Rule:

If a grandparent owned 529 plan was used to pay for a grandchild’s college, that money was counted as income received for the student on the FAFSA. Which reduced financial aid eligibility for the student.

Old Action: As a result, grandparents contributed to parent owned 529 plans and grandparent owned 529 plans were used only to fund the Junior & Senior year of college to avoid reporting the income on the FAFSA.

The New Rule:

Grandparent owned 529 plans are not reported on the FAFSA at all starting in 2024, so they have no impact on a student’s financial aid calculation.

New Action: It now makes more sense to have a grandparent owned 529 plan than a parent owned 529 plan! A parent owned 529 plan will get counted as a parent asset on the FAFSA, aid will be reduced by 5.64% of the account value. Let’s work out the math, if you have $100,000 in a parent owned 529 plan, then student aid will be reduced by $5,640, over 4 years that is over $20,000!

Not all grandparents can contribute financially to a college plan, but they can still help by being a trusted family member to implement the best saving strategy to preserve financial aid eligibility and possibly reduce the cost of college. Grandparents can be the 529 plan account owner to keep the asset from being reported on the FAFSA. There are no restrictions on who can contribute to a 529 plan. Grandparents, parents or anyone else can contribute to the grandparent owned 529 plan on behalf of the beneficiary. As the account owner the grandparent will have administrative responsibilities, but parents and students should plan on helping them navigate account management if necessary.

FAQs

1. Can grandparents contribute to a grandchild’s college savings plan?

Yes, grandparents can contribute to a grandchild’s college savings plan, including owning a 529 plan for their grandchild.

2. How does the new rule regarding grandparent owned 529 plans impact financial aid?

Starting in 2024, grandparent owned 529 plans are not reported on the FAFSA, which means they do not affect a student’s financial aid eligibility.

Conclusion

Grandparents play a crucial role in college planning and can make a significant impact on reducing the cost of higher education for their grandchildren. With the recent rule change regarding grandparent owned 529 plans, it is now more advantageous for grandparents to own these accounts to maximize financial aid eligibility. By involving grandparents in the college planning process, families can create a solid financial strategy that benefits both the student and the family as a whole.