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529 Plans and Financial Aid

Question: I have read in your archives that money in 529 plans is considered a parental asset not a student asset in the college aid financial aid calculations. However, I have encountered several companies here who say that (1) 529 plans will be counted as student assets and (2) that they are a bad place to put college money as it lets the colleges know exactly how much money the child has and therefore any offer will be less. They even promote "repositioning" these assets to hide them. Any comments? Thanks. Annette. Los Angeles, CA.

Answer: My main reaction: Don't do business with these companies. First, and most importantly, I'm against the whole business of hiding assets when it comes to financial aid. Period.

Secondly, these companies are wrong when they say 529 college savings accounts will be counted as a student asset on the main financial aid form, FAFSA. (Private colleges can do what they want, but most of them follow the FAFSA model with a few tweaks.)

Third, saving for college in 529 is financially smart: The savings compounds tax free, and withdrawals are tax free when used to pay for qualified educational expenses.

Fourth, experience suggests that it's easier for parents and their students to contemplate a wide range of schools when there are savings to tap into.

07/24/08 by Chris Farrell

Looking for guidance on your personal finances? I'm taking your questions and answering one here each day. Just click on the "Ask a question" link to tell me what's on your mind.

Chris Farrell Marketplace Money personal finance guru

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