Changes to FAFSA® Make It Easier for Grandparents to Help Save for College
published December 4, 2023
Grandparents are usually keen to help their grandchildren or other loved ones save for higher education, and 529 plans like Edvest 529 have been one of the more popular ways to do so.
But one worry many families may have is the “financial aid trap” that comes with grandparent-owned 529 accounts. Thanks to a significant overhaul of the Free Application for Federal Student Aid (FAFSA®), that’s no longer a concern.
The 2024-2025 FAFSA® will become available in December 2023 with dozens of questions removed, including one that asks about cash gifts from grandparents. This change indicates that grandparents – along with non-custodial parents and anyone outside the custodial household (like aunts, uncles, and family friends) – can help save for a student’s future education without affecting their need-based financial aid eligibility.
In general, 529 plans like Edvest 529 have a minimal effect on financial aid offerings because account assets are viewed as belonging to the parent, so FAFSA® ignores distributions from a parent account. The new FAFSA® will now view grandparent-owned 529 accounts in the same way as parent-owned accounts, meaning students will not need to report distributions from these accounts as untaxed income either.
Grandparents also receive triple tax benefits when saving with an Edvest 529 account. In Wisconsin, taxpayers can deduct eligible contributions from their Wisconsin state income taxes, and any earnings grow tax deferred. Withdrawals are also tax-free when used for qualified higher education expenses. Limitations apply.1
Furthermore, 529 plans can help with estate planning. Contributing to a 529 plan for a grandchild is considered a “completed gift” for federal tax purposes. Contributions and any earnings in the account are removed from the estate value, potentially reducing estate tax liability.
About Edvest 529
For more than 25 years, Edvest 529 – Wisconsin’s direct-sold 529 college savings plan – has been helping families save for higher education expenses. Account owners can choose from 24 investment portfolios, access easy-to-use savings tools, and take advantage of in-state tax benefits for Wisconsin taxpayers.
Edvest 529 is a tax-advantaged investment, meaning contributions to an account may qualify for a 2023 Wisconsin state income tax deduction of up to $3,860 per beneficiary per year, for single filers or married couples filing a joint return (married couples filing separately and divorced parents may each claim a maximum of $1,930). The plan has no sales charges, enrollment fees, or annual account maintenance fees. In fact, Edvest 529 is the fifth-lowest cost 529 college savings plan in the nation!2
- 1To learn more about Wisconsin's Edvest 529 College Savings Plan, its investment objectives, risks, charges and expenses see the Plan Description at Edvest.com. Read it carefully. Investments in the plan are neither insured nor guaranteed and there is the risk of investment loss. Check with your home state to learn if it offers tax or other benefits such as financial aid, scholarship funds, or protection from creditors for investing in its own 529 plan. If the funds aren't used for qualified higher education expenses, a federal 10% penalty tax on earnings (as well as federal and state income taxes) may apply. Consult your legal or tax professional for tax advice. TIAA-CREF Individual & Institutional Services, LLC, Member FINRA, distributor and underwriter for the Edvest 529 College Savings Plan.↩
- 2ISS Market Intelligence 529 College Savings Fee Analysis 3Q 2023. Edvest’s average annual asset-based fees are 0.15% for all portfolios compared to 0.51% for all 529 plans.↩
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