Grandparents & Family Can Contribute More to College 529 Plans Following Change to FAFSA Rule
As local WNY College planning specialists, we utilize this blog to help educate students and families around the region about the many in’s and out’s of financially planning for college. Remember that this month is the last month that students can apply for the 2022 Young Achievers Scholarship! You can apply here! Today’s blog focuses on a recent update in Congress that changes the way future students and families will pay for college. Let’s take a look at what changed.
Why the Change?
Up until now, current FAFSA forms require an applicant to report how much they receive from non-parent sources. Money distributed to students from grandparent-owned 529 plans reduced the recipient’s eligibility for federal aid by 50% of the amount withdrawn for the student. FAFSA takes the reported amount from non-parent sources, then adds half that gift to what’s known as the “Expected Family Contribution,” and then deducted from a student’s overall financial aid eligibility. This is part of a bigger change to the FAFSA, which we have outlined here on the blog. The FAFSA Simplification Act is Congress’s response to criticism of the form’s length and complexity.
Part of FAFSA Simplification Act
Beginning in the 2024-25 school year, several factors of the FAFSA will be removed, including the question about outside contributions. Grandparents, Aunts, Uncles, Godparents and other non-parent family members will be able to contribute as much as they wish to their own 529 accounts without the student being required to report any funds that are later withdrawn. College isn’t cheap, and this certainly helps students from all different financial backgrounds. The simplified FAFSA form hopes to help increase applications amongst low- and middle-income students. Because the form is so challenging, many people don’t even apply. According to a recent stud, $3.7 billion of free money was left on the table last yar by families eligible for aid.
Benefits of a 529 Plan
Why is this such a big deal? Well if you didn’t know already, a 529 plan is a fantastic way to help pay for college. State-run 529 plans have significant tax benefits. 529 account holders don’t have to pay taxes on gains or withdrawals as long as the money is used for college or certain other education expenses. Since 2019, student loan repayments can be paid with 529 money.
Have questions about College 529 Plan?
If you or someone you know have any questions about your college future, are interested in learning more about the FAFSA simplification, or interested in setting up a 529 plan, just give us a call! Certified College Planning Specialist Jeff Boron is a local source for everything you need to know about paying for college. Feel free to reach out via our contact form and we can get back to you directly! Thanks for reading! Stay tuned to the blog for more college financial planning tips!