The 529 Plan Advantage for Grandparents

A Grandparent's Guide to Funding College Under the New FAFSA

The new school year has just begun, and high school seniors are busy preparing college essays, envisioning dorm room décor, and looking forward to football games. However, there's a less exciting topic to contend with: how to pay for college.

The college landscape has changed dramatically for today’s students. The average annual cost of tuition at a public four-year college is now 23 times higher than it was in 1963. Since 1968, public four-year institutions have experienced an average annual inflation rate of 6.53%.

While these figures might be surprising to grandparents who remember when the cost of a degree at a public four-year college was just $3,716, there is good news: they can play a crucial role in helping to ease their grandchildren’s college expenses.

Until recently, distributions from a grandparent-owned 529 plan counted as untaxed student income on the Free Application for Federal Student Aid (FAFSA), potentially reducing aid by up to 50% of the distribution amount.

But now, as part of the FAFSA Simplification Act, which introduced significant changes in an attempt to streamline the federal financial aid application process, students are no longer required to report contributions from their grandparents. This has created an effective opportunity for grandparents to contribute to their grandchild’s education, without risking a reduction in the student’s potential aid package. As such, you can create a legacy for your grandchild by contributing to a 529 plan, which won't impact their eligibility for need-based aid and scholarships.

Grandparent-owned 529 plans not only protect financial aid eligibility but may also facilitate tax-efficient wealth transfers. These plans offer tax-free growth and tax-exempt distributions at both the federal and state levels when used for qualified education expenses. This year, you can contribute up to $18,000 annually per grandchild without incurring gift taxes. Starting in 2024, families can roll over unused funds from 529 plans into Roth individual retirement accounts for grandchildren, free of income tax or tax penalties.

Funding your grandchild’s education can therefore be a profoundly impactful way to transfer wealth. Helping them access a college education without burdensome debt is a gift that will benefit them for a lifetime.

At Evermay Wealth Management, we specialize in value-driven wealth transfer strategies for families like yours. Our team is here to guide you through every aspect of 529 planning, ensuring that you maximize the benefits of your wealth for your family's long-term success. We are available anytime to discuss how these plans may benefit you and your family. Give your Evermay team a call to schedule a meeting today!

Carrie Malatesta
Client Service Associate

https://educationdata.org/college-tuition-inflation-rate
https://studentaid.gov/help-center/answers/article/fafsa-simplification-act