Should 529 Plans Be Owned By Parents or Grandparents?

by Sarah Mouser, CFP®, CTS™, CES™  and Ryan Muscatella, CFP®

With the price of higher education increasing nearly eight times faster than wages, saving and paying for college is a common concern for many families. While there are multiple ways to begin saving for educational expenses, 529 plans are the most common. These plans are tax-advantaged investment accounts specifically designed to encourage saving for future education costs. 529 plans offer an array of advantages, including possible tax deductions for contributions, tax-free growth if used for qualified education expenses, and flexibility to change the beneficiary of the account.

But when it comes to ownership of 529 plans, whose name should the 529 plan be in? Does it matter if the owner is a grandparent versus a parent?

Questions like these about 529 account ownership are extremely common. We recently received a question from a client regarding a 529 plan that they have for their grandchild. Director of Financial Planning Sarah Mouser and Paraplanner Ryan Muscatella, Cassaday & Co.’s experts on education planning, responded by addressing:

  • the difference in parent vs. Grandparent-owned plans,
  • when to maintain or transfer ownership,
  • the importance of succession planning for a 529 plan.

Question: I read an article in the Washington Post about grandparent-owned 529 plans and it sparked questions about the plans we own for our grandchildren. The article discussed how distributions from these plans may have a negative impact on financial aid eligibility. Can you clarify this for me? Is there a tax impact for changing the owner of these plans to parents? The article also talked about the importance of succession. What happens to these plans when I am no longer around?

Answer: Prior to new upcoming legislation, the ownership of 529 plans was much more impactful. Grandparent-owned 529 plans were treated differently than parent-owned 529 plans when completing the FAFSA (Free Application for Student Aid). Distributions made from a grandparent-owned 529 plan were considered income to the student, which ultimately reduced financial aid eligibility by 50% of the amount distributed from the account. For example, if a grandparent withdrew $10,000 for college expenses for their grandchild, aid eligibility would decrease by $5,000 in the following year when the student applied for financial aid. Therefore, in the past, we typically advised clients to consider transferring ownership of 529 plans from grandparents to parents when:

  • no further contributions to the 529 plan would be made by grandparents, so the possible benefit of state tax deductions was not impacted
  • distributions were planned from the 529 plan in a year prior to completing the FAFSA, so financial aid eligibility in the following year was not reduced

Starting with the FAFSA for the 2024-2025 school year opening on October 1st, 2023, distributions from grandparent-owned 529 plans will no longer be considered untaxed student income. In addition, the new FAFSA will no longer include a question about cash gifts from grandparents. This means that grandparents, as well as others outside of the immediate family, will be able to help with the student’s college expenses with no negative implications for federal financial aid. As a result, there is typically no benefit to changing ownership of a grandparent-owned 529 plan to the parents.

While most schools utilize the FAFSA to determine aid eligibility, about 400 schools (mainly private colleges and universities) use the CSS Profile to distribute institutional aid. Grandparent-owned 529 plans and cash gifts will likely continue to be a disclosure requirement on the CSS Profile. If a student expresses interest in a school that utilizes the CSS Profile, please reach out to your financial advisor to determine a strategy to best fit your situation.

Education Planning is important to your holistic wealth management. Cassaday & Co. has developed a few resources that clients have found helpful when it comes to education planning:

If you have questions or would like more information, you can always contact your advisor or our Financial Planning Team. We are always happy to talk to you about maximizing your opportunities for paying for college.


Important Disclosures: Before buying a 529 plan, you should inquire about the particular plan and its fees and expenses. You should also consider that certain states offer tax benefits and fee savings to in-state residents. Whether a state tax deduction and/or application fee savings are available depends on your state of residence. For tax advice, consult your tax professional. Non-qualifying distribution earnings are taxable and subject to a 10% tax penalty.


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