A provision in the president's budget proposals could shelter 529 college-savings plans from being counted in determining federal student financial aid.
The investment accounts, designed to help families save for college by contributing to the tax-favored plans, are currently subject to a number of assessments when it comes to determining federal aid, depending on the type of plan and its ownership.
Right now, the government assesses a family’s eligibility for aid using the Free Application for Federal Student Aid. Under current law, funds in most 529 plans have counted in the calculation for determining need.
A law that went into effect last year changed how the assets of some custodial 529 plans, which has been counted at 35 percent, are assessed. Such custodial plans, owned by students, not parents, are no longer counted against financial aid in federal calculations. Most 529 account owners are parents, with students named as beneficiaries.
President Bush’s budget includes a change to make the FAFSA assessment of all 529 plans -- both prepaid plans guaranteed by state governments, as well as savings plans subject to market changes -- the same.
The idea, benefiting account holders across the board, would be to remove any remaining impediments to families deciding to participate in a plan. The obstacles facing the provision are members of Congress who feel that aid gets distributed more fairly when 529 assets are counted.
