For many of our clients, saving for a child’s education is one of their key financial goals, and 529 plans are a popular vehicle for doing so. While parents often own these accounts, there are unique benefits to having a grandparent own a 529 plan. If you’re a grandparent considering contributing to your grandchild’s education, here’s why owning a 529 plan yourself might be a strategic move.
- Financial Aid Advantages
A key reason for grandparents to own a 529 plan is its impact on financial aid eligibility. When a parent owns a 529 account, it is considered an asset on the Free Application for Federal Student Aid (FAFSA) and can reduce a student's eligibility for need-based aid. However, under recent FAFSA changes effective for the 2024-2025 school year, distributions from a grandparent-owned 529 plan will no longer be counted as student income, which previously had a significant negative impact on financial aid eligibility.
- Tax-Deferred Growth and Withdrawals
As with all 529 plans, investments grow tax-deferred, and withdrawals for qualified education expenses (such as tuition, books, and room and board) are also tax-free. Some states even offer tax deductions or credits for contributions, which can be an added benefit for grandparents who reside in eligible states. For our clients who reside in the state of Ohio, Ohio currently allows a tax deduction of $4,000 of contributions per year per child, if the contributions are made in one of Ohio’s state sponsored plans.
- Control Over Funds
When grandparents own a 529 plan, they maintain control over how and when the funds are used. If a grandchild decides not to attend college or receives a scholarship, the grandparent can change the beneficiary to another grandchild who may have greater need for the funds. A new rule that came into effect in 2024 also allows for funds in 529 plans to potentially be rolled over into a Roth IRA for the original beneficiary- these rules are more complex, so please feel free to reach out to our office if you have specific questions regarding this option. We do believe that the control and flexibility of a 529 plan is a significant benefit, something grandparents should be aware of.
- Help Mitigate the Impact on Parents’ Finances
A recent survey by Care.com highlighted the soaring cost of childcare in recent years. The survey stated that fees at home-based childcare centers increased nearly 50% in 2024. The same study found that on average, parents are spending 22% of their income on childcare in 2024, which far exceeds the 7% of family income the U.S. Department of Health and Human Services deems as the benchmark for childcare. This can often make saving for college by the parents feel like an unachievable goal- one that there is the potential for grandparents to help step into, if they have the desire and financial means to do so.
Conclusion
Grandparents who own a 529 plan for their grandchildren can take advantage of financial aid benefits, tax-deferred growth, and overall financial flexibility. With recent changes to FAFSA rules making grandparent-owned plans even more advantageous, now is an excellent time to consider opening or contributing to a 529 plan for your grandchild’s education. If saving for your grandchildren’s future education needs is a potential goal of yours, please feel free to contact our office, as we would love the opportunity to continue the conversation. We felt this topic was something worth sharing with you, our trusted friends and clients, as we continue Moving Life Forward together.
© 2025 Nathan Ollish
Senior Financial Advisor
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