Certified Financial Planner (CFP) Exam 2026 – 400 Free Practice Questions to Pass the Exam

Section 529 plan assets owned by a grandparent are typically treated differently from those held by a parent or student when it comes to financial aid calculations. According to the FAFSA guidelines, the funds in a 529 plan owned by a grandparent will not be considered as an asset when calculating the Expected Family Contribution (EFC). However, the key point is that these assets only become relevant in the financial aid calculation when distributions are made during the student's college years.

When a grandparent withdraws funds from the 529 plan and uses them for the student's education expenses, that distribution is counted as untaxed income to the student in the year it is received. This income can significantly affect the student's financial aid eligibility for the following academic year, as reported on the FAFSA. If distributions are made after the student graduates, they would have no impact on financial aid because the student would no longer be eligible for aid. Therefore, the timing of when the money is withdrawn and used becomes crucial in the financial aid calculations. This understanding is important for families planning to utilize 529 plans strategically in funding education.