Q about non-custodial-owned 529 distributions

BelknapPoint
Tue, 04 Sep 2018 21:23:27 +0000

Seems odd. If the student stays with both parents pretty much equally, say, 49/51, it seems illogical that funds from the “non-custodial” parent – the one whom he stays with 49% of the time – that are used to pay for college would be treated as student income. I realize it has to be treated as something, so if not a parental asset, it has to be student income.

First of all, it’s important to remember that FAFSA and Profile, like so many other applications for various benefits, are one-size-fits-all forms, and the process cannot be made “fair” for every single applicant. To your hypothetical, the 49% non-custodial parent will be reporting nothing on FAFSA, even if this parent has huge wealth. The 529 money held by the non-custodial parent isn’t counted as a parent asset, regardless of the size of the account, and a knowledgeable family with other resources can wait until the student’s spring sophomore semester to begin using the 529 money, in which case it will never show up on a FAFSA (assuming the student/beneficiary graduates in four years).