Are there Time or Age Limits on 529 Plans and Financial Aid? (2024)

FAQs

Are there Time or Age Limits on 529 Plans and Financial Aid? ›

There are no time or age limits on federal student aid. Some types of financial aid are limited to a first Bachelor's degree. This includes the Federal Pell Grant, Federal Supplemental Educational Opportunity Grant (FSEOG) and Teacher Education Assistance and Higher Education Grant (TEACH Grant).

There are also no age limits or requirements. You can start a 529 for an adult, child or even for yourself, if you decided to go back to school. Withdrawals used for eligible college expenses are generally not subject to state or federal taxes.

The value of a 529 plan owned by a dependent student or a parent (529 plans do not allow joint ownership) is considered a parent asset on the FAFSA. Any parental assets, such as a brokerage account, savings account, and other assets, will reduce a student's aid package by up to a maximum of 5.64% of the asset's value.

529 plans do not have specific withdrawal deadlines. A 529 plan account owner is not required to take a distribution when the beneficiary reaches a certain age or within a specified number of years after high school graduation, and funds can remain in the 529 plan account indefinitely.

In most states, that means age 18, though in some states the age threshold may be higher. The custodian can't change the beneficiary or account owner. Once the account owner/beneficiary becomes an adult, they assume control over the 529 plan.

Put time on your side with accelerated gifting

However, special 529 rules allow you to use five years of annual exclusions at once for a tax-free gift of up to $85,000 (joint taxpayers may fund $170,000).

The grandparent loophole allows grandparents to use a 529 plan to fund a grandchild's education without affecting the student's financial aid eligibility.

Not maintaining satisfactory progress at your college or degree program. Not filling out the FAFSA each year you are enrolled in school. Defaulting on a student loan.

If the 529 plan of a dependent student or the student's sibling is owned by the parent, it is reported as a parent asset on the student's FAFSA. If the student is an independent student, parent-owned 529 plans are not reported as an asset on the FAFSA, but distributions count as untaxed income to the student.

Can you use 529 for room and board if living at home? ›

You can have the 529 plan send a check directly to your school to cover on-campus room and board, including meal plans. In addition, students or their parents can pay for room and board out of pocket and then get reimbursed by the plan. For students living off-campus, using 529 funds is also an option.

For all these reasons, it's important to keep in mind that it's almost never too late to open a 529 plan, even if your child is 10 years old, 12 years old, or already in high school. You still have time to make a meaningful difference in helping pay for your child's future college costs.

Food and meal plans

Students living off campus can designate food as a qualified purchase also, as long as the amount spent is less than or equal to what is included in the college's cost of attendance allowance for room and board.

529 plan distributions receive favorable treatment on the FAFSA. Qualified distributions from a student-owned or parent-owned 529 account to pay for this year's college expenses are not included in the “base-year income” that would reduce college financial aid eligibility.

Under certain conditions, you can roll over tax- and penalty-free up to a lifetime limit of $35,000 in a 529 to a Roth IRA open by the 529 beneficiary for more than 15 years, subject to annual Roth IRA contribution limits. (Note: The annual contribution limit would be the beneficiary's, not the parents'.)

Beginning in 2024, you can transfer unused funds in a 529 plan to a Roth IRA for the same beneficiary, without tax or penalties. These rollovers are subject to several rules and limits: Transfers have a lifetime maximum of $35,000 per beneficiary. The 529 plan must have existed for at least 15 years.

529 college savings plans do not have contribution deadlines. You may contribute to a 529 plan at any time throughout the year, and you do not have to stop making contributions once the beneficiary reaches a certain age.

By superfunding your 529 plan with a lump-sum contribution of $50,000, in 18 years when your child is ready to enter college, your account balance will have increased to $120,331. By dividing $50,000 into monthly contributions of $231 instead, your account balance will have only increased to $81,509.

If you haven't figured it out, once your child's 529 balance equals the current cost of all four years of college today (private or public), you can stop contributing to the 529 plan. You've reached your Coast 529 Target Amount, which should grow at a similar rate, if not faster, than the cost of college.

One is to transfer or roll over the 529 account to a new beneficiary. To be an income tax-free rollover, that person must be a member of the original beneficiary's family, such as siblings (including stepsiblings), parents, spouse, children, first cousins, nieces and nephews.