Do I move the plan out of grandparents name into mine to use this spring 2019

[Chris]

Hello :). My mother has set up a 529 plan in her name for our son. We will need to use it to start paying tuition costs and books come mid January. Do I have her now change it into our name or do I keep it in hers? How does this affect financial aid for next year and are there tax consequences for us parents or our son? My mother can be forgetful so I’m wondering if that’s another reason to turn it into our name. We paid out of pocket for the fall semester but can’t for winter. Books alone were 700.00 he has a grant and scholarship for his first year but not sure what will happen next. Thanks!

[Mark_Kantrowitz_SFC]

A grandparent-owned 529 plan is not reported as an asset on the Free Application for Federal Student Aid (FAFSA), but distributions count as untaxed income to the beneficiary on a subsequent year's FAFSA. This reduces eligibility for need-based financial aid by as much as half of the distribution amount.

This is in contrast to a parent-owned 529 plan, which is reported as an asset on the FAFSA, but distributions are ignored. Parent assets reduce aid eligibility by up to 5.64% of the asset value.

There are a few potential workarounds for a grandparent-owned 529 plan:

• Delay taking a distribution until January 1 of the student's sophomore year in college. If the student will graduate in four years, there will be no subsequent year's FAFSA to be affected, since the FAFSA bases income on the prior-prior year.
• Change the account owner from the grandparent to the parent.
• Rollover a year's worth of money each year from the grandparent-owned 529 plan to a parent-owned 529 plan after filing the FAFSA. The parent-owned 529 plan must be in the same state as the grandparent-owned 529 plan to avoid state tax benefit recapture rules and state income taxes, since most states consider an out-of-state rollover to be a non-qualified distribution.

[Chris]

Thank you for the response. We unfortunately can not wait until his sophomore year but will be using it this January but from your response it seems like our best option is to either turn it into our name or take only the amount that we believe will be for tuition and books for 2019 year and turn that amount into a 529 plan held in our name. Yes my mother and I live in the same state.