Based on TexasCFP’s last post, I did find the DoE instructions for completing Worksheet B at:
http://www.ed.gov/prog_info/SFA/FAFSA/instr02-03/step2_5.html
While I agree with his statement that untaxed income would have to be included on Worksheet B, it would seem to me that only the growth portion of the account would be untaxed income. The original contributions are gifts subject to gift tax, but not income tax. Based on the examples that are included in the instructions (ie., workers' compensation, etc.), I don't think anyone would classify a 529 plan as a benefit.
I can see an argument that the contributed portion of the account would be considered "Cash Received" on Worksheet B. In reading the instructions, though, I note that cash received from parents to a dependent student need not be included. If the 529 plan is in the name of a parent, aren’t qualified distributions “cash received” from the parent. Until the parent agrees to a qualified distribution for the student, money in the 529 plan is the parent's money to do with as they will (subject of course to a penalty for non-qualified withdrawals). If the account were in the name of someone other than a parent, that would be a different story.
Assuming that the 529 is in the name of the parent, it looks to me like only the untaxed growth of the 529 should be included on Worksheet B. That means to me that 50% of the untaxed growth would be included in the EFC, not 50% of the entire distribution.
What am I missing?