How will my 529 account be treated for financial aid purposes?
Answer
It depends on what type of aid you're applying for, federal or institutional. As of July 1, 2006, the federal government treats prepaid tuition plans the same as state savings plans for financial aid purposes. Currently, state savings plans are reported on the federal aid application as an asset of the parent (if the parent is the account owner), and assessed at a rate of 5.6 percent (they're not reported at all if the account owner is someone else, for example, a grandparent). Any distributions (withdrawals) from the plan that are used to pay the beneficiary's qualified education expenses are not counted as either parent or student income. And now prepaid tuition plans will be treated the same way.
Prior to July 1, 2006, prepaid tuition plans were treated more harshly than state savings plans under the federal financial aid formula. Specifically, a prepaid tuition plan wasn't counted as either an asset of parent or student, but any distributions from the plans were considered a "resource" that reduced the cost of attendance at any given college, resulting in a corresponding dollar-for-dollar reduction in financial aid.
Regarding institutional aid, colleges generally treat both state savings plans and prepaid tuition plans as a parental asset (when the parent is the account owner), but their treatment of plan withdrawals may vary. Contact the financial aid administrator at your child's school for more information.
GE 37673 (03/07)
If you are investing in a 529 plan outside of your state of residence, you may lose available state tax benefits. Make sure you understand your state tax laws to get the most from your plan.
529 plans are subject to enrollment, maintenance, administration/management fees and expenses. 529 plans are subject to fluctuation in value and market rise, including loss of principal.
Investors should consider the investment objectives, risks, charges, and expenses of 529 plans carefully before purchasing. More information about 529 plans can be found in the issuer's official statement. Please read the official statement carefully before investing.
AXA Equitable does not provide legal or tax advice.
Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent advisor. AXA Equitable and its affiliates do not provide legal or tax advice.
Information provided has been prepared from sources and data we believe to be accurate, but we make no representation as to its accuracy or completeness. Data and information is provided for informational purposes only, and is not intended for solicitation or trading purposes. Forefield, Inc is not an affiliate of AXA Equitable. Please consult your tax and legal advisors regarding your individual situation. Neither AXA Equitable nor any of the data provided by AXA Equitable or its content providers, such as Forefield, shall be liable for any errors or delays in the content, or for the actions taken in reliance therein. By accessing the AXA Equitable website, a user agrees to abide by the terms and conditions of the site including not redistributing the information found therein.
© Copyright 2007 Forefield Inc. All rights reserved.
