Many grandparents save for their grandchild’s college education using 529 college savings plans for good reason, but there is confusion about whether or not it will hurt the grandchild’s eligibility for college financial aid. The answer is that it depends, but even if it does it may not have a big impact.
529 college savings plans are a type of account that can be used to save for college and have any earnings on the investment in the plan come out tax-free to pay for qualified college expenses. The federal financial aid rules say that if a 529 plan is owned by the student or the student’s parent(s), any distributions from the plan will not be counted as income for calculating need-based college aid eligibility. That is good.