FAQs: Other common questions
- Financial aid
- What impact does a 529 plan have on eligibility for federal financial aid?
- Estate tax treatment
- What are the estate tax benefits of a 529?
- UGMA/UTMA accounts
- Can I open a MOST 529 account with the money from an UGMA/UTMA account?
- Who is considered the owner of the UGMA/UTMA 529 account assets?
- Will I be able to change the beneficiary of this UGMA/UTMA 529 account?
What impact does a 529 plan have on eligibility for federal financial aid?
529 plan assets are counted at different rates for the Expected Family Contribution (EFC) in the FAFSA formula. Federal guidelines are as follows:
- If the student is a dependent, a 529 plan account is considered the parent's asset (if the account is owned by the student or the parent of the student). As a result, it will generally be counted at a rate of up to 5.64% of its value for the EFC.
- If the student isn't a dependent and is the account owner, the 529 plan account is treated as the student's asset and is generally factored into the EFC at the higher rate of 20%.
- In other cases (such as with a grandparent), the account doesn't count as an asset for federal financial aid purposes. (However, a student may have to report distributions received from the account as income for these purposes.)
Note: Financial aid programs offered by educational institutions and other nonfederal sources may have their own guidelines for the treatment of 529 plan accounts.
For complete information about financial aid eligibility, you should consult with a financial aid professional and/or the state or educational institution offering a particular financial aid program, since rules and regulations often change.
Estate tax treatment
What are the estate tax benefits of a 529?
If you die with money remaining in your account, it won't be included in your estate for federal estate tax purposes.
However, if you choose to take advantage of the federal gift tax averaging option and you die within five years of contributing, a prorated portion of the contribution will be subject to estate tax. For more information, consult your tax advisor or estate-planning attorney.
Can I open a MOST 529 account with the money from an UGMA/UTMA account?
MOST 529 permits a custodian for a minor under the Uniform Gifts/Transfers to Minors Act (UGMA/UTMA) to use funds in an UGMA/UTMA account to open a MOST 529 account and to fund additional contributions, subject to the laws of the state under which the UGMA/UTMA account was established.
Because money gifted to a child in an UGMA/UTMA account is irrevocable, you shouldn't mix UGMA/UTMA and non-UGMA/UTMA assets in the same 529 account. You should consult with a tax advisor before transferring UGMA/UTMA assets to a 529 plan.
Who is considered the owner of the UGMA/UTMA 529 account assets?
The plan permits the custodian to act as the account owner. The beneficiary doesn't have control of the assets in the account until the custodian informs the plan that the beneficiary has reached the age of maturity.
Will I be able to change the beneficiary of this UGMA/UTMA 529 account?
A custodian account owner may not select a new beneficiary (directly or by means of a rollover), except as permitted under UGMA/UTMA guidelines. When the custodianship terminates, the beneficiary is legally entitled to take control of the account and may become the account owner.
Additional contributions of money not previously gifted to the beneficiary under the UGMA/UTMA account should be made to a separate, noncustodial account, to allow the account owner to retain control of the separate account after the custodianship terminates.