In short, even though a 529 account is for a child, it is considered a parental asset and is figured into the Expected Family Contribution, which affects financial aid awards. Below I explain the impact of a 529 account, or multiple 529 accounts, on the amount of financial aid your child could receive in more detail.
Benefits of a 529 Account
A 529 account is set up by the state and is specifically for your child’s college education. You can save money in this account without having to pay taxes on the earnings. If you have three children, you can have a 529 account for each child. If you have 529 accounts for multiple children, you can switch funds from one child’s account to another without there being any kind of penalty, at least at this point in time.
A 529 Account Is a Parental Asset
While there are great benefits to investing in a 529 account, there is a drawback you may not be aware of: the plans are considered in financial aid amount determinations. I’m not a financial advisor, but I had 529 accounts for my children and I’m going to explain in simple terms how these plans affect financial aid awards.
The parent is typically the owner of the 529 account with the child being the beneficiary. Because of this technicality, the account is considered a parental asset. Yes, I know you are saying, “But these are for the children!” Unfortunately, the government includes a percentage of the monies in these accounts in the overall aid calculation.