The situation is a non-custodial parent who owns a 529 for his son. The mother files the FAFSA and has a low EFC. If the non-custodial father takes a $5,000 qualified distribution to pay for tuition and fees, it would be considered untaxed income on the FAFSA, that much is clear. However, if the father transfers $5,000 to a new 529 for the son (or does an account owner change), with the son as owner and beneficiary (son is 18), and the son then takes a qualified withdrawal for his tuition and fees, that withdrawal would not be considered untaxed income.
Would the contribution (or 529 account owner change) from father to 18 year old son be considered untaxed income? I've never a contribution to a 529 counted as untaxed income which is why I'm asking.
Of course, any balance in the son's 529 as of the date of FAFSA filing would be reported as a student asset.