Does a 529 plan affect financial aid?

Saving for college reduces student loan debt at graduation and increases college choice. But it can also affect eligibility for need-based financial aid. Depending on who owns the 529 plan account, a 529 college savings plan may affect either the income or the assets reported on the Free Application for Federal Student Aid (FAFSA).

Do 529 withdrawals affect FAFSA?

Withdrawals from a 529 plan used for qualified education expenses do not count as income on the FAFSA, thereby not affecting the financial aid calculation in the subsequent year. However, if grandparents or others own the 529 plan, distributions can be counted as untaxed student income, potentially reducing aid eligibility.

Does a 529 plan count on the FAFSA?

Any interest, dividends, or capital gains generated from a student’s asset reported on their federal income tax return will be counted on the FAFSA. This income will be assessed at 50% when calculating SAI. However, earnings in a 529 plan do not have to be reported on the FAFSA and will have zero effect on financial aid.