Hello, This is my first time posting on CC. Thanks for the anticipated help. Question is as follows. How do we access the money in the Grandparents 529 plan to pay tuition for Spring semester of Sophomore year and going forward? The goal is to continue to maximize financial aid at a CSS Profile school. There will be another sibling attending college next year. CSS Profile for 2024-2025 has been completed, FAFSA application has not. As I understand it options include: 1) rollover from grandparent to parent owned acount, which would increase assets, or 2) distribution to student and then have student pay school. This used to count as unearned income on FAFSA, but will no longer, but may on CSS Profile. Have I missed anything? Thanks for your input.
Can the grands pay the college directly?
Thanks. They probably could but wouldn’t CSS school see that as a gift or untaxed income?
@BelknapPoint are payments directly to the school viewed as gifts or untaxed income?
@kelsmom ?
The grands could also gift the money to the parents. Then the parents could pay for college. Gifts have no tax implications when this is done…I believe.
I would assume that money from a grandparent 529 to the student would be considered a gift for Profile. When it had to be reported on FAFSA, it was considered a gift. It doesn’t matter how it’s paid, if paid on behalf of the student it is a gift. If it is possible for the grandparent to roll it over to the parent account, it is considered a parent asset.
But if it’s paid out to the school before the next FAFSA is filed…it wouldn’t be an asset either, right?
So submit the fafsa. Assets are reported as of the date of filing. Then couldn’t the grands gift to the parents who would then just pay the bill?
I could be wrong…so hoping the experts chime in.
The account owner controls access to the account, and can request a distribution by contacting the account administrator. Generally, distributions can be handled in one of three ways: directly to the school, to the account beneficiary, or to the account owner.
It depends who is doing the viewing.
Standard IRS gift tax implications in this scenario.
So really…this gift would have no immediate tax implications. The grands might need to complete a form if they (two of them) exceed the allotted amount for the year. But unless they are giving more than the total lifetime amount (and no college costs in the millions), there really is no tax issue…just a form to complete.
Correct? @BelknapPoint
Yes, highly likely just need to file a gift tax return (for reporting purposes only, no actual payment of tax) if the gifts exceed the annual exclusion amounts.
Thank you all.
Sorry to resurrect a thread that is a few months old but I have a question. While the gift from the grandparents to the parents has no tax implications, wouldn’t it still be counted as untaxed income in the year that the transfer of assets took place? This could affect future CSS applications too that use the “transaction” year as the base year.
We are 8 years into doing the CSS profile as both our kids attend meets full need schools. We also had a situation with gift money from grandparents to parents.
Both schools wanted to know about the gift money, the CSS asks the specific question, and it was always counted as untaxed income in the year that the transaction took place.
Are you asking about reporting on FAFSA?
Sounds like the question is for Profile. Call the school to ask if you are not sure.
The OP mentioned that they were at a CSS Profile school so I was just chiming in with our experience with a gift from grandparents to parents. Both schools instructed us to report the gift on the Profile under Untaxed Income & Benefits. We also prepared a separate letter for each school which addressed the nature of the gift and whether it was recurring vs non-recurring in future years.
The key take-away for us was that even if the gift is gone from your assets at the time of reporting, it was still income in that particular year.
So…have the grands gift starting in junior year spring. That year will never appear on your kid’s FAFSA or Profile…because both use prior prior year tax year info.
A gift is not income to the recipient for federal tax purposes. CSS/Profile can define it like that and require you to include it no matter when received (used in this case if it is in the grandparents’ account), and not use prior prior years.
My only caveat to this is that CSS Profile asks for an estimate of income (including untaxed income) for the tax year after the base year. In addition, it asks if the parents expect a significant income change for the year after that.
So, for this year’s CSS filing (which is based on a 2022 tax year) it asked for an estimate of all income for 2023 and whether we expect any changes for 2024.
That means that the application filed for your student’s senior year will ask about income all the way through the fall of their senior year.
With that being said, grandparents can gift starting in spring of junior year (after the senior year CSS is filed) depending on how honestly one interprets the question “Do the parents expect a significant change in income…”
Gifts (even if promised) are never guaranteed, so it’s a bit of a gray area.
Yes, but there is NO evidence this is used in the calculation for the year of that Profile form. And this info is not included on net price calculators either which are supposed to be an accurate estimate.
And I agree with you…just don’t take those gifts until spring of Junior year.
Yup, your guess is as good as mine to whether or not they use that info.
But, it does make you wonder: why ask if you’re not going to use it?