A 529 plan is one of the smartest ways for grandparents to help save for their grandkids’ college education. Many grandparents contribute generously to these plans, often making large gifts or regular contributions, even though the accounts are owned by the parents. This allows grandparents to play an active, meaningful role in their grandkids’ future while preserving the tax and financial-aid advantages.
Due to changes to the Free Application for Federal Student Aid (FAFSA), the Asset Protection Allowance has dropped to $0, making more of a parent's assets potentially countable. However, 529 plan assets are still assessed at a maximum of just 5.64% of the account's value. Better yet, the FAFSA Simplification Act eliminated more than two-thirds of the FAFSA form's notoriously frustrating questions and officially closed a major financial aid hurdle: the "grandparent loophole." Now, distributions taken from grandparent-owned 529 accounts to cover a dependent grandchild’s qualified expenses are no longer counted as student income, allowing grandparents to fund an education without derailing aid eligibility.
