529 impact on need aid

politeperson
Tue, 27 Jan 2026 19:07:49 +0000

First thing I’d do if there is institutional aid involved is have your sister review the FA award letter/terms (if any). Sometimes those specifically mention reporting assets used for payment that weren’t captured by the FA forms.

Another thing to keep in mind is that the 529 distribution doesn’t need to go to the beneficiary or the school directly. If the FA being up in the air and/or the separation create concerns about your gift causing problems, you could simply switch the beneficiary, distribute the relevant funds to yourself as the owner (ETA: now or later), and send the cash to your sister to submit payment. I don’t know if that’s preferable to a direct payment to the school, but it’s an option. Just make sure you keep copies of relevant expenses for your files.

As you probably already know, there could be coordination issues on the tax side between AOTC, 529, scholarships (need-based included), so you’d want to be aware of those and communicate with your sister.

Also keep in mind the 529 funds can be used later to pay off student loans up to 10k, if there’s reason to kick this down the road.

Very kind of you to help out your sister this way.