Can 529 be used to pay for student loans?
A law signed by President Donald Trump in December 2019 added a new qualified expense that can be paid for by 529 plans: student loans.
Do 529 plans count against FAFSA?
But many parents are reluctant to open a 529 account because they think it’ll affect their child’s eligibility for financial aid. 529 plans do affect financial aid, but not to the degree you might think. Assets in a 529 are counted as the parents’ assets on the Free Application for Federal Student Aid (FAFSA).
Does 529 savings affect financial aid?
In most cases, your 529 plan will have a minimal effect on the amount of aid you receive and will end up helping you more than hurting you. There are also several steps you can take to increase your child’s eligibility for student financial aid.
Can I pay off my daughter’s student loan?
But can you do it, and should you? While there are no rules restricting parents from paying back their children’s student loans, if you choose to pay off your child’s student loan, you will most likely need to file a gift tax return and pay any applicable gift tax .
Why you shouldn’t use a 529?
The rules on 529 plans are strict. The most important one is this: you must use funds in a 529 account to pay for qualified educational expenses. Otherwise, you’ll owe taxes on the investment gains at whatever the IRS would normally charge you plus an additional penalty rate of 10 percent.
How does 529 affect EFC?
Most non-retirement assets are assessed the same as 529 accounts, at 5.64% toward the EFC. For every $10,000 you save in a 529 account, your EFC only increases by $564. Custodial accounts, trusts, and other student-owned assets are assessed at 20% toward the EFC.
What happens to a 529 plan if child doesn’t go to college?
If assets in a 529 are used for something other than qualified education expenses, you’ll have to pay both federal income taxes and a 10% penalty on the earnings. (An interesting side note is that if the beneficiary gets a full scholarship to college, the penalty for taking the cash is waived.)
Does FAFSA check your savings account?
FAFSA doesn’t check anything, because it’s a form. However, the form does require you to complete some information about your assets, including checking and savings accounts. Whether or not you have a lot of assets can reflect on your ability to pay for college without financial aid.
Can parents pay off student loans tax free?
Loan co-signers—usually a parent—can make tax free donations of any amount by making payments to the loan. There are no limits to the payments you can make as a co-signer on a student’s educational loan. You can even pay off the entire amount for the student without incurring any gift taxes.