Grandparents and 529 Plans

January 25, 2024

Q: My financial advisor suggested that I set up a 529 plan account for my granddaughter. I have two questions: first, is it better for parents or grandparents to open the 529 plan account? I have heard conflicting reports on that. Second, is it possible for others to contribute to a 529 plan that I open?

A: Your question is timely. In December, a new simplified FAFSA (Free Application for Federal Student Aid) form was adopted for the 2024-2025 academic year. Not only is this new form shorter (it reduces the number of questions asked from 108 to 46), but it also eliminates any references to cash gifts from grandparents. The new FAFSA makes grandparent-owned 529 plans much better than before.

By way of background, a primary purpose of the FAFSA is to calculate a number called the Student Aid Index, or SAI. The SAI was formerly referred to as the “Expected Family Contribution,” or EFC. It is a measure of a family’s financial strength, and is used by colleges to determine the amount of aid the student will receive. A new FAFSA and a new SAI is filed every year a student is in college.

Knowing how the SAI is calculated is key to optimizing the college financial aid system. We don’t have room to get into the details of the SAI calculation in this column, but highlighting a few key points will help show the value of grandparent-owned 529 accounts.

A student’s SAI is based on their income and assets, as well as the income and assets of parents, if the student is a dependent. All bank accounts, investment accounts, investment real estate, and business interests owned by the student are considered eligible to pay for college. Twenty percent of their value, after subtracting any debt tied to those assets, is included in the SAI. By the way, a 529 plan owned by the student is counted as a parent asset.

The student’s income is also included in SAI, subject to an Income Protection Allowance of $9,410. This means that 50 percent of income above $9,410, net of taxes and living expenses, is included in the student’s SAI. Note that the income reported on FAFSA is from the tax return filed two years prior to the FAFSA filing.

Calculating the parental contribution to SAI is more complicated. First, income from their tax return filed two years prior is adjusted for various allowances and tax credits to determine their income contribution. Then net assets, excluding their primary residence, are multiplied by 0.12. to arrive at the Parent Contribution from Assets. Finally, the income contribution and contribution from assets are added together and multiplied by a progressive factor, ranging from 22% to 47%, based on income, to get the Total Parent Contribution. Did you catch all that?

Like I said, it’s complicated. But here is where the new FAFSA rules really shine. Nowhere in the FAFSA questionnaire is there any mention of grandparent income or grandparent assets. As a grandparent, your wealth and your gifts to your grandchild are completely invisible to the financial aid system. No matter how large your 529 plan balance grows, and no matter how many contributions you make to support your grandchild through college, your actions will have no impact on your grandchild’s eligibility for financial aid.

Of course, as with most things, there is a small wrinkle that you need to be aware of. About 200 colleges require students to also file a form, called the CSS Profile, to evaluate their eligibility for non-federal financial aid and scholarships. This form still asks for untaxed income, including gifts from grandparents, or distributions from 529 plans. A full list of colleges that require the CSS Profile can be found at

In regard to your last question: yes, anyone can contribute to another person’s 529 plan. Their contributions, like yours, are governed by the annual gift tax exclusion rules, but there is a twist. 529 Plans allow you to “superfund” the plan using something called 5-year gift tax averaging as described in section 529(c)(2)(B) of the Internal Revenue Code. We will discuss that in more detail next week.


Please see important disclosure information here.

Steven C. Merrell MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey. He welcomes questions that you may have concerning investments, taxes, retirement, or estate planning. Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA  93940 or email them to