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How Does a 529 Plan Affect Financial Aid?

A 529 plan impacts financial aid as it is considered in the determination of whether you qualify for financial aid, and the amount of aid for which you qualify. Below we outline just how it affects the aid amount.

A 529 Plan Is Treated as a Parental Asset on the FAFSA

When filling out the FAFSA, be sure to have your 529 Plan information handy. Although the child may be the beneficiary of the 529 plan, if the parent is the owner of the account it is considered a parental asset, along with your non-retirement brokerage accounts as well as savings and checking, amongst others. As such, you must include it in the parental asset section of the FAFSA.

But it isn’t just that child’s 529 plan you must disclose. You must also list the 529 plans for any other of your children of which you are the owner. Yes, you read that correctly. All of the 529 plans that you own are considered parental assets and must be listed on the FAFSA. If you have multiple children, that asset amount can add up quickly! Let’s say you have four children and you own 529 accounts for each child, with each account holding $25,000. Your parental asset would be $100,000, not the $25,000 you may have been thinking when you went to fill out the financial aid form.

How Much of the Funds in the 529 Plan Are Included in the Aid Calculation

The financial aid formula notes the difference between parental assets and child assets. Each is assessed at a different level.

A parental asset is assessed at about a 5% rate. So if all of your 529 plan assets total $100,000 your assessed amount would be $5,000. That $5,000 is what is included in the financial aid calculation and the total for your Expected Family Contribution. The Expected Family Contribution is what the federal government and/or institution says you can pay for your child’s college education for one year. There are some changes to the Expected Family Contribution on the horizon that do involve assets that you should take note of, which you can read about in our recent article on the changes to the FAFSA.

In summary, a 529 plan does affect financial aid – both whether you qualify and if you qualify, how much you will receive. This is because any 529 plans that a parent owns, even if they are for their other children, are considered parental assets. These parent owned plans are assessed on the FAFSA at a rate of about five percent and included in the Expected Family Contribution calculation. So be sure to have all of your 529 plan information on hand when you are filling out the FAFSA.

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