Hilltopmom Posted March 16, 2017 Share Posted March 16, 2017 So, I've been obsessed the last 2 days following the "paying for college" threads. I have another question. It may be school dependent... Say a NPC shows a cost of $8,000 after grants & loans. Does savings from a 529 plan get applied during the FAFSA process to reduce aid, or can we use that $ towards the $8,000 difference? Merit aid & outside scholarships would get figured in before the $8,000, usually, right? So say a $2,000 outside employee scholarship wouldn't actually reduce the $8,000, just his loan amount? Thanks Quote Link to comment Share on other sites More sharing options...
teachermom2834 Posted March 16, 2017 Share Posted March 16, 2017 529 is counted as a parental asset. So the amount in all 529s owned by the parent is treated as though the parent had it in a savings account. Can't remember exact percentage. Five point something. A $2000 outside scholarship would likely reduce grant aid and then loans. However, my ds school let him stack it and use it to pay the family contribution so it is possible some places. However, I will not be surprised if next year's FA package is lower now that they know we have the outside scholarship (didn't get awarded until April last year). 1 Quote Link to comment Share on other sites More sharing options...
Crimson Wife Posted March 16, 2017 Share Posted March 16, 2017 Who owns the 529? I didn't have to declare mine at all because it was set up by my late grandmother. I didn't qualify for any financial aid aside from loans (not a surprise but I had to do the FAFSA in order to even be considered for scholarships) so I am using it rather than loans to pay my EFC. 1 Quote Link to comment Share on other sites More sharing options...
Hilltopmom Posted March 16, 2017 Author Share Posted March 16, 2017 (edited) Grandma owns the 529 :) TBH- she's a bit of a nut job & could likely not actually allow him access to the $. So, it's not a sure thing. Edited March 16, 2017 by Hilltopmom Quote Link to comment Share on other sites More sharing options...
JanetC Posted March 16, 2017 Share Posted March 16, 2017 (edited) Who owns the 529? I didn't have to declare mine at all because it was set up by my late grandmother. I didn't qualify for any financial aid aside from loans (not a surprise but I had to do the FAFSA in order to even be considered for scholarships) so I am using it rather than loans to pay my EFC.Not correct. If grandma owns a 529, proceeds from it are supposed to be on the FAFSA as bills paid on the student's behalf by someone other the student or parents. Those 529 payouts should should reduce need dollar for dollar. On the other hand, assets owned by the parent reduce need by 5.6% on the dollar, which is why grandma should contribute to a parent's 529 rather than owning her own. Edited March 16, 2017 by JanetC 4 Quote Link to comment Share on other sites More sharing options...
Hilltopmom Posted March 16, 2017 Author Share Posted March 16, 2017 Not correct. If grandma owns a 529, proceeds from it are supposed to be on the FAFSA as bills paid on the student's behalf by someone other the student or parents. Those 529 payouts should should reduce need dollar for dollar. On the other hand, assets owned by the parent reduce need by 5.6% on the dollar, which is why grandma should contribute to a parent's 529 rather than owning her own. Darn. Yeah, she would never give the money to us. She likes gifts with strings that only she controls. We couldn't list it on the FAFSA first year, because we truly don't know if she'll give it to him or not. (It's "for" him, but no guarantees with her) If she does, it could be listed the next year. Quote Link to comment Share on other sites More sharing options...
JanetC Posted March 16, 2017 Share Posted March 16, 2017 How to tap a grandparents 529: http://www.savingforcollege.com/articles-grandparents/what-grandparents-need-to-know-about-the-new-fafsa-rules-984 1 Quote Link to comment Share on other sites More sharing options...
JanetC Posted March 16, 2017 Share Posted March 16, 2017 We couldn't list it on the FAFSA first year, because we truly don't know if she'll give it to him or not. (It's "for" him, but no guarantees with her) If she does, it could be listed the next year. Never declare money he hasn't actually gotten of course. The tricky part here is that the college will assume he's getting similar income in the upcoming year to what he got in the PPY. You may need to file an appeal if the money stops flowing or comes in inconsistent amounts. 1 Quote Link to comment Share on other sites More sharing options...
Grantmom Posted March 16, 2017 Share Posted March 16, 2017 I really know nothing about finance, but I have always wondered why it would be better to save in a 529, than to just to save in an account in the parent's name. Quote Link to comment Share on other sites More sharing options...
teachermom2834 Posted March 16, 2017 Share Posted March 16, 2017 I really know nothing about finance, but I have always wondered why it would be better to save in a 529, than to just to save in an account in the parent's name. Tax free interest earned if used for qualified educational expenses. Oldest ds had earned quite a bit in interest by the time we withdrew. 3 Quote Link to comment Share on other sites More sharing options...
Julie of KY Posted March 16, 2017 Share Posted March 16, 2017 It varies by school and situation. 529's should not affect merit scholarships. If you are not getting need-based money - grants, scholarships - then the 529 money only decreases the amount of loans that you'd have to take out. Parental 529's show up on assets. Grandparent 529's do not show up at all until used and then only show up later in college since prior, prior year taxes are used. The 529 money will show up as untaxed income for the student. If you delay taking out the funds until JR/SR year then they may never show up on any FAFSA/Profile. I don't think grandparent 529's reduce aid dollar for dollar. It does show up as untaxed student income. Students are actually "expected" to have some income so how much it impacts the student depends somewhat on the rest of their income. Generally, student's are expected to contribute about 20-25% of their income toward college. For some schools, that give large need-based grants, I've read that they may expect you to have as much as 50% of that income again the next year. At the school my son is attending, I've played around with their net price calculator quite a bit with grandparent 529 money. Assuming their calculator is correct, it depends greatly on how much income my son also is making from a job before there is an impact from the 529 money. It also depends on how much money is given. The difference between receiving, $1000, $10000 or $20,000 is not linear. The more money given, the more impact it has. 1 Quote Link to comment Share on other sites More sharing options...
RootAnn Posted March 16, 2017 Share Posted March 16, 2017 (edited) You don't have to declare non-student and non-parent owned 529 assets, as far as I know. However, once they are used to pay for school, they go on the tax bill (and thus show up somewhere on the FAFSA, I assume). It is best to save 529 payments until Jr or Sr year for that reason. ETA: Julie said it better than I did and posted while I was typing. Edited March 16, 2017 by RootAnn 1 Quote Link to comment Share on other sites More sharing options...
regentrude Posted March 16, 2017 Share Posted March 16, 2017 I really know nothing about finance, but I have always wondered why it would be better to save in a 529, than to just to save in an account in the parent's name. Because the 529 contributions are paid before state tax, and the earnings are completely tax free if used to pay for college. Quote Link to comment Share on other sites More sharing options...
madteaparty Posted March 16, 2017 Share Posted March 16, 2017 (edited) Because the 529 contributions are paid before state tax, and the earnings are completely tax free if used to pay for college. IIRC, only certain states provide a state income tax benefit for contributions to 529s, and that's up to a certain amount per year, but true across the board re: earnings. Edited March 16, 2017 by madteaparty Quote Link to comment Share on other sites More sharing options...
JanetC Posted March 17, 2017 Share Posted March 17, 2017 You don't have to declare non-student and non-parent owned 529 assets, as far as I know. However, once they are used to pay for school, they go on the tax bill (and thus show up somewhere on the FAFSA, I assume). . Not on the tax bill. If grandma pays the money directly to a college there is no gift tax on any amount. If grandma pays money to kid or parent in an amount exceeding gift tax limits, grandma owes gift tax, not the recipient. It does go in the students FAFSA, though. Quote Link to comment Share on other sites More sharing options...
Julie of KY Posted March 17, 2017 Share Posted March 17, 2017 My son gets a 1099Q for qualified educational funds paid with him as a beneficiary of 529 funds - it doesn't matter if they are paid to the college or him (he's still the beneficiary). He's not taxed on the income, but it is reported as non-taxable income. This is very different than non-529 money that is paid as a gift. As far as gift taxes, if greater than $14,000 is gifted to someone then it occurs a gift tax. If you contribute more than $14,000 to one beneficiary in a 529 plan per year then it has a gift tax. I think you can withdraw any amount from the 529 without gift taxes if it is used for qualified educational expenses. 2 Quote Link to comment Share on other sites More sharing options...
JanetC Posted March 17, 2017 Share Posted March 17, 2017 The 1099 Q will show that the 529 withdrawal was penalty-free, however I still believe that when grandma's money in whatever account type pays for grandkids college, that's not reported on kid or parents tax return. It does go on kid's FAFSA as "bills paid on behalf of the student by someone who is not filing this form." Quote Link to comment Share on other sites More sharing options...
Julie of KY Posted March 17, 2017 Share Posted March 17, 2017 My tax adviser says I have to report the 1099Q on my son's taxes as non-taxable income. He does not pay taxes on it, but it does show up as income. I'm not personally versed well enough in tax law to know if this is true, but I trust her as she has worked taxes for many, many years. 1 Quote Link to comment Share on other sites More sharing options...
JanetC Posted March 17, 2017 Share Posted March 17, 2017 @Julie Scratching my head on that one. A withdrawal used for qualified expenses shouldn't be reported on any tax return. You just save your 1099Q and 1098T and any other receipts for qualified expenses in case you get audited later. See second to last paragraph here: https://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Forms/What-Is-IRS-Form-1099-Q-/INF14817.html It should only be reported as a payment on the student's behalf on the FAFSA if the money was owned by someone besides the student or custodial parent (and only when the FAFSA catches up to that year) Quote Link to comment Share on other sites More sharing options...
Corraleno Posted March 17, 2017 Share Posted March 17, 2017 As far as gift taxes, if greater than $14,000 is gifted to someone then it occurs a gift tax. If you contribute more than $14,000 to one beneficiary in a 529 plan per year then it has a gift tax. I think you can withdraw any amount from the 529 without gift taxes if it is used for qualified educational expenses. Annual gifts of more than 14K (per recipient) have to be reported to the IRS, but there is no gift tax unless the donor has already maxed out their lifetime gift exclusion, which is currently about 5.5 million. Any donations in excess of 14K per year per recipient eventually gets subtracted from the 5.5 million that can be excluded from estate taxes after the donor's death. Quote Link to comment Share on other sites More sharing options...
RootAnn Posted March 17, 2017 Share Posted March 17, 2017 Janet, check out that article you linked earlier. It indicates what you are saying, bit also backs up Julie. The money paid to a school from a non-student, non-parental 529 is considered untaxed income and must be reported as such (including on the student's taxes). Consult your tax advisor etc,etc. "Any monetary gift from a grandparent or other relative, including money from a 529 plan, is considered untaxed income and must be added to the student's adjusted gross income on the FASFA." 1 Quote Link to comment Share on other sites More sharing options...
Corraleno Posted March 17, 2017 Share Posted March 17, 2017 Janet, check out that article you linked earlier. It indicates what you are saying, bit also backs up Julie. The money paid to a school from a non-student, non-parental 529 is considered untaxed income and must be reported as such (including on the student's taxes). Consult your tax advisor etc,etc. "Any monetary gift from a grandparent or other relative, including money from a 529 plan, is considered untaxed income and must be added to the student's adjusted gross income on the FASFA." Actually both of the articles that Janet linked say that distributions must be reported on the student's FAFSA, not the student's tax return. The only time that 529 distributions must be reported to the IRS is if the distributions exceed the qualifying expenses, because the portion that exceeds expenses is subject to tax. Otherwise they do not need to be reported on the student's tax return as unearned income: If the distribution doesn’t exceed the amount of the student's qualifying expenses, then you don't have to report any of the distribution as income on your tax return. If the distribution exceeds these expenses, then you must report the earnings on the excess as "other income" on your tax return. 1 Quote Link to comment Share on other sites More sharing options...
Corraleno Posted March 17, 2017 Share Posted March 17, 2017 This is from an article in Forbes regarding 529 distributions: Mistake #1: Believing that the 1099-Q amounts must be reported somewhere on your tax return. If none of your withdrawals are taxable—more on that determination below—nothing needs to be shown on your federal income tax return. You might be thinking that you have to somehow prove your qualifying expenses to the IRS. You don’t, unless of course your return is later picked for examination by the IRS. Just keep good records of college expenses paid during the year. 1 Quote Link to comment Share on other sites More sharing options...
JeanM Posted March 17, 2017 Share Posted March 17, 2017 My oldest is a high school senior now, so we haven't dealt with some of these issues yet, and I appreciate all the information here! He has a good bit of money in 529s set up by his grandparents. The one piece of info that I have to add is that if you have to fill out the CSS profile, you may have to declare how much is in those 529s. I don't recall the questions exactly, but I'm pretty sure they asked if anyone else was contributing to the student's college expenses. Our plan (not sure if it will work out) is to not use the 529 money until ds's junior year of college. That way the "unearned income" hopefully will not affect his financial aid for junior and senior years. Obviously I don't know yet if this will work out. 1 Quote Link to comment Share on other sites More sharing options...
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