FAFSA Changes Help Grandparents (Article)


FAFSA Changes Help Grandparents

College is expensive! One way some parents, grandparents, and other loved ones help a future student save and prepare for those college costs is through a 529 plan. This is one of the best ways to save as the money can be invested, earnings are tax-deferred, distributions are tax-free for qualified education expenses, and there are no annual contribution limits (although gifting rules do apply)! The MoneyAdvice@Work® team always encourages this savings mechanism when saving for college.


Previously, when a grandparent owned a 529 plan for a grandchild, and that money was distributed, the distribution would need to be reported and count as income for the student/grandchild which might affect their financial aid eligibility the following year.


With the new provision, over 50% of the current FAFSA questions will be eliminated, including those questions revolving around cash gifts from grandparents. So, grandparent owned 529 plan distributions have no impact on the aid package a student receives!

The new questions are effective for the 2022 FAFSA which applies to the 2023 – 2024 school year. Given the structure of the FAFSA (essentially a two-year look back), grandparents can start taking advantage of the change this year, as distributions from grandparent owned 529 plans in 2021 will not impact aid eligibility. Any distributions from these 529 accounts prior to 2021 would fall under the old rules and still have an impact.


The Free Application for Federal Student Aid (FAFSA) is the form used to determine your financial need for higher education. Completing the FAFSA is necessary to receive Federal student loans including those that are not need based. Visit studentaid.gov to get started or for more information.

FAFSA results are sent to the college where the Financial Aid office uses the results to determine the exact financial aid “package” the student will receive. This could be a combination of loans, scholarships, grants, and work study programs.


For 2021, an individual is allowed to gift up to $15,000 per beneficiary and still qualify for the annual gift tax exclusion. Always consultant a tax expert to review your personal situation.

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