It has been my understanding that for both FAFSA and CSS, parents must include in their assets ALL the 529s they own, regardless of beneficiary. This means that younger siblings’ 529s may be hit with a 5%+ per year “FAFSA/CSS-tax” for many years (much more than 4) while older siblings go through college.
Was that the case, and is that still the case, for both FAFSA and CSS?
This seems like a big deal. Am I reading this right? Is this new, or was FAFSA always like this?
This is our first year. We already submitted CSS declaring all 529s for all kids. Was that correct, or should we only have included 529s for the one kid?
Which way will it be for FAFSA? Actually for us on FAFSA, assets won’t count, so it doesn’t affect us (this year), but the question of which assets count could be significant for some.
I don’t remember - but you own the 529. The beneficiary can be changed - so I’d assume it’s the total amount. Otherwise people would just keep switching the $$ to a different person.
But others will answer.
I remember the questions being very descriptive so it should hopefully be self explanatory.
Based on the links posted by OP, it looks like 529 accounts owned by a parent with someone other than the student named as the beneficiary will no longer need to be reported on FAFSA as a parent asset. This is a significant change, and I agree with tsbna44 that this will lead to parents simply designating someone other than the reporting student as the beneficiary of parent-owned 529 accounts when FAFSA is completed, and then changing the beneficiary to the student as needed after FAFSA is filed. There are no limits as to how often or how many times a 529 beneficiary can be changed.
I don’t know whether this is the case…or not. But the Profile could ask for something very different than the FAFSA. They aren’t identical, and the Profile tends to dig deeper into family finances.
The FAFSA instructions clearly indicate that only the 529 owned by or earmarked specifically for the student is reported (as a parent asset). Why the change? No clue. But unless the final-final FAFSA instructions indicate otherwise, this is the new rule. As most of us are aware, the Profile takes a much deeper dive into family finances, and I would not be surprised if schools take into account all 529 accounts designated for siblings, as well, when determining expected contribution for institutional aid purposes. Whatever the Profile instructions ask for is what should be reported in that particular form.
I guess I should quote the relevant text here.
NASFAA: “Education savings accounts: Previous instructions on education savings accounts like 529 plans included confusing and, at times, conflicting information. ED clarifies in this final version of the FAFSA that parents of dependent students should report as parental assets only the value of college savings plans designated for the dependent student (not those designated for other children),”
Draft FAFSA: “Investments also include qualified education benefits or education savings accounts such as Coverdell savings accounts, 529 college savings plans, and the refund value of 529 prepaid tuition plans. If the student is required to report parent information on the FAFSA form, parents should not report the value of education savings accounts for other children.”
I was so surprised when I saw this, as I have been following this topic for years, and was always resigned to all 529 assets (for all kids) counting as assets on both FAFSA and CSS.
But it makes sense when one realizes that they are intentionally making Pell much more widely available, with higher income cutoffs, and using AGI (without adding back various things), and now we see that asset considerations are more lax too.
By contrast CSS school are giving their own money, and often much larger amounts are involved, so it makes sense that they stay strict and thorough with their income and asset determinations.
The new FAFSA formulas give us Pell, but we still get hit on CSS for our 529s.
It’s correct that the FAFSA simplification is geared towards Pell eligible students. I imagine that data shows that Pell eligible families aren’t especially likely to have significant 529 savings. Simplifying the process for them is key. Families with significant 529 savings are very unlikely to receive any federal aid other than loans and federal work study, so it doesn’t really matter whether they have unreported 529 accounts for siblings. Of course, the school may care for purposes of awarding their own aid. Profile schools will require that information. Schools that don’t use Profile will most likely never know if there are sibling 529 accounts. That may seem like a lucky break, but most non-Profile schools aren’t awarding significant amounts of need based aid to individual students.