Does a 529 plan affect financial aid?

Hyunmin Kim Margaret Giles of Morningstar A college savings plan can be a powerful tool when saving for future mentoring expenses because investments in the plan can increase tax-free but plenty of savers don t take full advantage of all the benefits that plans have to offer Related Articles Petitioned on Reddit How should I trim my monthly budget Details high school grads facing k in college pupil loans Home buyers may face surprise credit hit from novice loans Tariffs could cost the average American household per year Here s how to save for it Trainee loans in default will be sent for collection Here s what to know for borrowers One common deterrent to investing through a plan is the concern that assets in a account will reduce financial aid eligibility While it s true that assets have an impact on financial aid the effect is likely smaller than you think Do plans affect financial aid The short answer is yes An increase in the means to fund higher teaching naturally means the beneficiary is eligible for less need-based aid However assets in a plan have a lesser impact on financial aid packages than income does A apprentice s federal financial aid is based on an estimate of what a family can contribute annually from their income and assets Income is the largest portion of this measurement of a aspirant s ability to pay for college which is represented by the Apprentice Aid Index or SAI on the Free Application for Federal Novice Aid or FAFSA The SAI replaced the expected family contribution which was previously used on the application Typically the SAI calculation expects parents to use to of their adjusted available income to cover college costs though that number can go as high as Parental contribution from assets including account balances is assessed at a much lower maximum of So if a family has a account with this raises the expected family contribution by at bulk and reduces the federal aid package by the same amount A plan s impact depends on who owns the account The impact of assets on a beneficiary s financial aid package depends on who owns the account As outlined above if the plan is owned by the beneficiary s parent then of the account s value is considered in the SAI which determines a apprentice s financial aid eligibility on the FAFSA On the other hand if the plan is owned by the participant then up to of the account value may be considered in calculating financial aid eligibility With changes to the federal apprentice aid calculation as part of the FAFSA Simplification Act that took effect for the - academic year accounts owned by grandparents or other relatives are not considered participant assets and won t impact the beneficiary s financial aid Siblings assets don t count for federal financial aid After the FAFSA Simplification Act assets in accounts are counted as parental assets only for the beneficiary of the account That means if you have accounts set up for your other children the assets in those accounts are no longer counted toward the expected family contribution As mentioned above accounts owned by grandparents or other relatives will also be excluded from determining federal financial aid eligibility Financial aid eligibility differs between FAFSA and CSS profile There are also schools that use the College Scholarship Arrangement or CSS Profile primarily private schools to calculate their financial aid packages The CSS Profile s formula to calculate aid differs from FAFSA s For instance the CSS Profile asks for all accounts owned by the beneficiary s parents whereas the FAFSA only counts accounts for which the pupil is the beneficiary Moreover the CSS Profile is customized by the institution so each school can have its own formula to calculate its aid packages While each school that uses CSS Profile information applies its own standards this calculator estimates what your family might be expected to pay This article was provided to The Associated Press by Morningstar For more personal finance content go to https www morningstar com personal-finance