A grandparent wants to help pay for their grandchild's college education. How are distributions from a grandparent-owned 529 plan treated on the FAFSA starting in 2024-25?

Not reported on the FAFSA at all. Starting with the 2024-25 FAFSA, grandparent-owned 529 plan distributions are no longer reported at all. This major change eliminates the previous penalty where such distributions counted as student income, which could significantly reduce financial aid eligibility.

What is the primary advantage of age-based portfolios in 529 plans?

They automatically become more conservative as the child approaches college age. Age-based portfolios automatically adjust the asset allocation to become more conservative as the beneficiary approaches college age. This reduces the risk of major losses when the funds will be needed soon, without requiring the account owner to manually rebalance.

A parent is deciding between a 529 plan and an UTMA account for their child's education savings. Which is a key advantage of the 529 plan?

The account owner retains control regardless of the child's age. A key advantage of 529 plans over UTMA accounts is that the account owner retains control of the funds regardless of the beneficiary's age. With UTMA, the child gains control at the age of majority (18-21), and can use the funds for any purpose. 529 owners can also change beneficiaries.

Education Planning Recommendations — Free Series 6 Guide 2026

529 plans are the primary Series 6 product for education savings. Understanding when and how to recommend them, including comparisons to alternatives, is essential for making suitable recommendations.

529 Plan Suitability

When 529 Plans Are Suitable

Situation	Why 529
Saving for college/education	Tax-free growth for qualified expenses
Long time horizon	Time to benefit from tax-advantaged growth
Want control	Account owner retains control (unlike UTMA)
State tax benefit available	Additional tax savings
High-income contributor	No income limits

When 529 Plans May Not Be Suitable

Situation	Concern
Uncertain about education use	10% penalty for non-qualified withdrawals
Need flexibility for other uses	Limited to education expenses
Child may not attend college	Potential penalty situation
Very short time horizon	Little time to benefit from tax-free growth

Age-Based Portfolios

Most 529 plans offer age-based portfolios that automatically adjust:

Child's Age	Typical Allocation
0-5 years	80-90% stocks
6-10 years	60-70% stocks
11-15 years	40-50% stocks
16-18 years	20-30% stocks
College age	Mostly bonds/stable value

Benefits of Age-Based

Automatic rebalancing
Appropriate risk adjustment
No ongoing management needed
"Set it and forget it"

Alternative: Static Portfolios

Fixed allocation regardless of age
For those with specific risk preferences
Requires manual adjustments over time

529 vs. Alternatives

529 vs. Coverdell ESA

Feature	529 Plan	Coverdell ESA
Annual contribution limit	None (gift tax applies)	$2,000
Income limits	None	$110K single/$220K joint
Use by age	No limit	Must use by age 30
Investment options	Limited by plan	Self-directed
K-12 expenses	$10,000/year tuition	Full qualified expenses
State tax benefit	Often yes	No

Key Point: 529 plans are generally superior for most families due to higher contribution limits and no income restrictions.

529 vs. UGMA/UTMA

Feature	529 Plan	UGMA/UTMA
Control	Owner retains control	Minor owns at majority
Use restrictions	Education only	Any purpose
Tax treatment	Tax-free for education	Kiddie tax applies
Financial aid impact	Parental asset (5.64%)	Student asset (20%)
Beneficiary change	Yes, to family member	No

Key Point: 529 plans are better for most education savings because owner retains control and has less financial aid impact.

Financial Aid Impact

FAFSA Treatment (2024-25 and later)

Account Type	Treatment
Parent-owned 529	Parental asset (up to 5.64% counted)
Student-owned 529	Parental asset (up to 5.64% counted)
Grandparent-owned 529	NOT reported on FAFSA
UTMA	Student asset (20% counted)

Major 2024 Change: Grandparent-owned 529 distributions are no longer counted as student income on FAFSA. This eliminates a previous disadvantage of grandparent-owned plans.

CSS Profile Note

Some private colleges use the CSS Profile, which may still ask about grandparent-owned 529s. Check specific school requirements.

Grandparent-Owned 529 Plans

Advantages

Benefit	Description
No FAFSA impact	Distributions not reported starting 2024-25
Estate planning	Removes assets from grandparent's estate
Control	Grandparent retains control
State tax benefit	Grandparent may get deduction

Considerations

Grandparent controls timing of distributions
Less coordination with overall education plan
CSS Profile schools may still consider

State Tax Considerations

Choosing a State Plan

Factor	Consideration
State deduction	Home state may offer tax deduction
Fees	Compare expense ratios across plans
Investment options	Variety and quality of choices
Plan ratings	Research independent ratings

State Tax Strategies

Some states allow deduction for ANY state's plan
Others only for their own state's plan
Calculate if deduction outweighs any fee difference
Non-residents may still benefit from any state's plan

Gift Tax and Superfunding

Annual Limits (2025)

Contributor	Annual Amount	5-Year Superfunding
Individual	$19,000	$95,000
Married Couple	$38,000	$190,000

Superfunding Considerations

Great for estate planning
Removes large sum from estate immediately
No additional gifts to that beneficiary for 5 years
Must file Form 709

529-to-Roth Rollover (SECURE 2.0)

Starting 2024, unused 529 funds can roll to beneficiary's Roth IRA:

Requirement	Detail
Account age	529 open at least 15 years
Lifetime limit	$35,000 per beneficiary
Annual limit	Subject to Roth contribution limits ($7,000)
5-year rule	Can't roll recent contributions (last 5 years)
Earned income	Beneficiary must have earned income ≥ rollover

Key Benefit: Families can overfund 529s without penalty risk - excess goes to retirement.

Key Exam Points

529 advantages - Tax-free growth, no income limits, owner control
Age-based portfolios - Automatically become more conservative
529 vs. UTMA - 529 better for most (control, aid impact)
Grandparent plans - No longer hurt FAFSA (2024-25+)
Superfunding - $95,000 individual/$190,000 couple (2025)
529-to-Roth - 15-year account, $35,000 lifetime limit
State tax benefit - May favor home state plan

Series 6

5.6 Education Planning Recommendations

Key Takeaways