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college savings account owned by grandparents

529 Accounts


529 college savings accounts owned by the grandparents can be in a valuable benefit for a college bound grandchild.   Since the accounts are owned by the grandparents it does not show up anywhere for financial aid purposes which allows the student to qualify for more financial aid. However, even though 529 account owned by the grandparents are not considered an asset when applying for financial aid, distributions from 529 accounts on behalf of the beneficiary are considered income of the account beneficiary in the year that the disbursement occurs from 529 account.

For example, assume the grandchild receives $20,000 in financial aid in their freshman year but there is still a $10,000 balance due to attend college. The grandparents distribute $10,000 from the 529 account that they own for the benefit of the grandchild.  When the parents apply for the financial aid package in the student’s Junior year, they $10,000 529 disbursement that took place in the freshman year will need to be reports as income of the student on the FASFA application.  That could completely destroy their financial aid package since 50% of the student’s income counts against the financial aid package.

Remember, the FASFA application now looks back two years instead of one for income purposes.  To avoid this situation, the grandparents should not distribute any money from the grandchild’s 529 account until the spring semester of their sophomore year.


Don’t setup UGMA or UTMA accounts


UGMA a stands for Uniform Gift to Minors Act.  UTMA stands for Uniform Transfer to Minors Act.   Different names but the accounts work in a similar fashion.

If there is a chance that the student may qualify for financial support from either a public or private institution, these accounts can significantly reduce the financial award.  The types of accounts are considered an asset of the child not the grandparent.   When an asset is titled in the child’s name, approximately 20% of the account balance will count against their financial aid package.  For this reason, it is often more beneficial to establish a 529 account which is considered an asset of the grandparent and can be invisible for financial aid purposes.


Michael Ruger

About Michael………

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

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