Grandparent-Owned 529 Plans and Financial Aid: What Families Should Know

Many families choose to use 529 college savings plans to help cover the cost of higher education. You may have heard that having a grandparent open a 529 account for your child can be beneficial for financial aid purposes, but the reasoning behind this can be confusing.

Here’s a straightforward look at what you need to know, including how these accounts are reported on the FAFSA and the CSS Profile.

What Is a Grandparent-Owned 529 Plan?

A 529 plan is a tax-advantaged way to save for college. It can be owned by a parent, a grandparent, or another relative. When a grandparent opens the account and names the student as the beneficiary, the grandparent owns the money, and the student benefits.

A great article that explains some pros and cons of grandparent-owned 529s is Mark Kantrowitz’s piece on The College Investor, especially the section on “Impact on Financial Aid.”

How Are 529 Distributions Treated on the FAFSA?

There’s good news here:

FAFSA (Federal Student Aid)

• Money distributed from a grandparent-owned 529 is not counted as a student asset and is not reported as untaxed income on the FAFSA.

• This rule changed with the 2024–2025 FAFSA, as the simplified FAFSA no longer asks whether anyone outside the parents will help pay for college.

• In practical terms, this means that grandparent-owned 529 distributions are not counted against the student’s financial aid eligibility on the FAFSA.

That can be a meaningful advantage for families who want to preserve as much need-based aid as possible.

What About the CSS Profile?

Here’s where it gets a bit more nuanced:

CSS Profile (College Board)

• Unlike the FAFSA, the CSS Profile still asks about money given to the student by someone other than the parents.

• As a result, grandparent-owned 529 distributions can count against financial aid eligibility at colleges that require the CSS Profile.

So the “advantage” of grandparent 529s is specific to FAFSA-only schools. Families considering schools that use the CSS Profile (often private colleges) should be mindful of this difference.

In other words:

FAFSA: Grandparent 529 distributions generally don’t affect aid.

CSS Profile: Grandparent 529 distributions may affect aid

Other Things to Think About

Asset Treatment

• A parent-owned 529 is counted as a parent asset on financial aid forms and is assessed at a lower rate (about 5.64% on the FAFSA).

• A grandparent-owned 529 isn’t counted as a student or parent asset on the FAFSA once money is distributed.

  
  

Control of the Money

Because the grandparent owns the account:

• Legally, the grandparent controls the funds.

• They can change the beneficiary, take distributions for non-qualified expenses, or use the funds for other purposes.

• Some families include guidelines or expectations with grandparents to help avoid surprises.

State Tax Considerations

Some states offer tax deductions or credits for contributions to their state’s 529 plan. If parents live in a state with a generous deduction and grandparents don’t, it may make more financial sense for the parents to contribute instead — even if the financial aid treatment differs.

Changing Ownership

In some states, it may be possible to change the owner of a 529 plan, but this depends on state rules. If you’re considering this, check the specific plan details or consult a financial professional. Here is a great article that explains the ownership rules.

Timing & Income Reporting on CSS Profile

A related point worth knowing is how the CSS Profile handles timing: The Profile collects income information from two years prior to the school year being applied for. For example, money a student receives in 2026 toward the 2026–2027 school year wouldn’t be reported until the CSS Profile for 2028–2029, based on income timing rules.

The Bottom Line

Here’s the simple summary:

• Grandparent-Owned 529s + FAFSA

Money distributed from a grandparent 529 generally does not reduce need-based aid on the FAFSA.

• Grandparent-Owned 529s + CSS Profile

CSS Profile schools may still count money from third parties, including grandparents, and this can influence aid.

• Family Conversations Matter

Because the grandparent owns the account, it’s important for families to talk about expectations, timing of distributions, and how the funds will be used.

Not Financial Advice, Just Helpful Info

I’m not a financial aid expert, but this overview reflects how FAFSA and CSS Profile treat grandparent-owned 529s today. If your family is navigating this, it can be helpful to speak to a financial planner or financial aid expert. If you’re looking for a referral, I have some great colleagues I can recommend. Feel free to reach out here.