Should a 529 Be in a Parent’s Name?
The name on a 529 plan has lasting financial consequences. Understand how this strategic choice can impact student aid eligibility and fund management.
A 529 plan is a tax-advantaged savings vehicle for future education costs. A primary decision when opening an account is who should be the owner. This choice between a parent, grandparent, or the student has consequences for financial aid eligibility, control over the funds, and tax benefits. The name listed as the account owner is a strategic choice that can shape the financial landscape of a student’s college career.
Understanding 529 Plan Roles
Every 529 plan has three roles with specific rights and responsibilities. The “Account Owner” is the individual who establishes and legally controls the account, with the authority to make all decisions, including choosing investments, processing withdrawals, and changing the beneficiary.
The “Beneficiary” is the future student for whom the money is being saved. While the account exists for their benefit, the beneficiary has no legal control over the funds. The account owner can change the beneficiary to another eligible family member if the initial student does not pursue higher education.
The “Successor Owner” is designated by the current account owner to take control of the 529 plan in the event of the owner’s death. Naming a successor ensures the account does not get tied up in probate and that the funds remain available for the beneficiary.
Parent-Owned 529 Plans
When a parent is the account owner, the 529 plan is considered a parental asset on the Free Application for Federal Student Aid (FAFSA). This treatment is favorable for financial aid calculations. Under the Student Aid Index (SAI) formula, parental assets are assessed at a maximum rate of 5.64%. For every $10,000 in a parent-owned 529 plan, the student’s expected contribution toward college costs increases by no more than $564.
This ownership structure provides the parent with complete control over the account. The parent decides when to withdraw funds and can manage the investment strategy. If the original beneficiary does not attend college, the parent can change the beneficiary to another eligible family member without tax penalties.
Another advantage is the potential for state income tax benefits, as many states offer a tax deduction or credit for contributions.
Grandparent-Owned 529 Plans
Recent changes to financial aid rules have made grandparent-owned 529 plans more attractive. Following the FAFSA Simplification Act, which took effect for the 2024-2025 academic year, withdrawals from a grandparent’s plan no longer negatively impact the student’s FAFSA.
The primary benefit is that the account value is not reported as an asset on the FAFSA. Since the FAFSA only asks for assets of the student and parents, a 529 plan owned by a grandparent is excluded from the Student Aid Index (SAI) calculation.
Grandparent-owned 529 plans also offer estate planning advantages. Contributions are considered completed gifts, removing the money from the grandparent’s taxable estate. For 2025, an individual can contribute up to $19,000 per beneficiary, and a married couple up to $38,000, without incurring gift tax.
A provision allows for “superfunding,” where a grandparent can make a lump-sum contribution of up to five years’ worth of gifts at once—$95,000 for an individual or $190,000 for a married couple in 2025. This strategy can accelerate college savings while reducing the value of the grandparent’s taxable estate.
Student-Owned 529 Plans
A 529 plan can be owned by the student, often created when funds are transferred from a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account. This structure has considerations for financial aid and control.
The financial aid impact depends on the student’s dependency status. If a dependent student owns the plan, it is reported as a parental asset on the FAFSA and assessed at the maximum 5.64% rate. If the plan is owned by an independent student, it is reported as a student asset and assessed at a much higher 20% rate.
The other consideration is the loss of control. In a student-owned account, the student gains legal control of the funds upon reaching the age of majority in their state, typically 18 or 21. At that point, the student can use the money for any purpose. If they withdraw funds for non-qualified purposes, they will owe income tax and a 10% penalty on the earnings portion of the withdrawal.