Families Are Talking About — And Why You Should Be Careful
College costs continue to rise, and families are searching for any advantage they can find when it comes to financial aid. One topic that’s getting a lot of attention right now is the new FAFSA rule change involving grandparent-owned 529 plans.
Beginning with the 2024–2025 FAFSA, financial help from grandparents (or aunts, uncles, or other generous relatives) no longer hurts a student’s eligibility for need-based aid. Distributions from a 529 account not owned by the parent or student are no longer counted as student income on the FAFSA.
This is a meaningful shift — and a welcome one for families who want to help a student pay for college.
But it has also sparked a common question:
“Should we move our 529 plan into a grandparent’s name so the FAFSA doesn’t count it as our asset?”
It sounds simple. In reality, it’s far more complicated — and in some cases, risky.
Let’s break it down.
🥇 Why Families Are Considering This Strategy
Under current FAFSA rules:
Parent/student-owned 529 accounts must be reported as parental assets.
Parent assets can reduce need-based aid eligibility by up to 5.64% of the asset value.Grandparent-owned 529 accounts are not reported as parental assets.
And withdrawals no longer count as “student income.”
That’s why some families are wondering whether transferring ownership to grandparents could help them look more aid-eligible.
But before you act on that idea, here are important issues every family should understand.
⚠️ 6 Key Risks of Moving a 529 Into a Grandparent’s Name
1️⃣ Not all states allow ownership changes
Some states let you change the 529 account owner.
Others only allow a change due to death or divorce.
Your state’s rules determine whether this strategy is even possible.
2️⃣ Rolling over to a new 529 may trigger state tax issues
If the grandparents open a new 529 and the parents roll money into it:
Some states treat this as a non-qualified distribution for state tax purposes
Taxes could be owed on earnings
State tax deductions/credits previously received may be recaptured
In many cases, staying within the same state plan avoids this.
3️⃣ CSS Profile schools always count 529s
About 187 colleges (mostly selective private schools) use the CSS Profile for financial aid.
The Profile counts any 529 account — regardless of owner — if the student is the beneficiary.
So this strategy does not help for FAFSA and CSS Profile schools.
4️⃣ Grandparents gain full control of the account
Once they become the owner, they have the legal right to:
Change the beneficiary
Spend the money on someone else
Take a non-qualified distribution for any purpose
Most families trust each other — but ownership changes deserve serious consideration.
5️⃣ Could affect grandparents’ long-term care or Medicaid eligibility
A grandparent-owned 529 is considered their asset for long-term care and Medicaid rules.
If the grandparent needs nursing home care:
The 529’s value may count as their asset
Prior withdrawals may trigger the five-year Medicaid lookback
It could reduce benefits or delay eligibility
This is one of the biggest hidden risks.
6️⃣ FAFSA looks at assets “as of the day you file”
There’s no waiting period.
If the grandparents own the 529 on the FAFSA filing date, it's treated as their asset (which FAFSA does not count against the student).
Grandparents’ other assets?
FAFSA does not consider them — only the 529 ownership.
🧠 Is This Strategy Ethical?
Some families see this as “just good planning.”
Others see it as hiding assets.
At George Wealth Management, our stance is clear:
We believe in doing what’s truly best for your family — ethically, responsibly, and transparently.
There are situations where adjusting account ownership or funding strategies can be appropriate. But there are also times when this approach can:
Backfire
Create tax issues
Jeopardize a family relationship
Cause long-term care/Medicaid complications
Misalign with a family’s values
That’s why every situation requires personalized guidance.
🎓 College Planning Is Changing Fast — Families Deserve Clarity
Between FAFSA rule changes, shifts in SAT/ACT requirements, and rising admissions complexity, families are navigating more uncertainty than ever.
You don’t need to figure this out alone.
📅 Schedule a Complimentary College Planning Consultation
If you have a student heading to college in the next 1–6 years, now is the right time to review:
Your 529 strategy
FAFSA/CSS Profile exposure
Tax-efficient funding options
Merit aid vs. need-based aid timelines
How to avoid common financial aid mistakes
We’ll walk through your questions, your numbers, and your goals using our Naturally Smart Planning Framework — simple, transparent, and pressure-free.
👉 Click here to schedule your complimentary consultation.
Cetera Wealth Services, LLC exclusively provides investment products and services through its representatives. Although Cetera does not provide tax or legal advice, or supervise tax, accounting or legal services, Cetera representatives may offer these services through their independent outside business. This information is not intended as tax or legal advice.
Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer's official statement and should be read carefully before investing.
Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investment in any state's 529 Plan.