Rest Confident, Your Money is Safe and Secure at Kirtland Credit Union, a message from our President & CEO. Learn More

We have engaged FORVIS, LLP (Attn: Jeff Rosno, 1801 California Street , Ste. 2900, Denver, CO 80202) to perform member verifications. Kindly compare the balance of your accounts on your December 2022 statement WITH YOUR RECORDS. If balances do not agree, please address your discrepancies directly to FORVIS, LLP. Include your name, truncated account number, and an explanation of the difference noted.  A reply is not considered necessary unless a difference is noted.

Kirtland CU branches and the Member Contact Center will be closed on Monday, February 19 in observance of Presidents’ Day.

Credit and debit card fraud is on the rise. Please monitor your account activity for any unusual transactions. >> Learn more

Kirtland Credit Union will never ask you to provide, update, or verify personal or account information through an unsolicited email, phone call, or text message. If you receive an unsolicited email, phone call, or text message, DO NOT RESPOND. Notify us at (505) 254-4369 or 1-800-880-5328.

If you may experience financial hardship related to the government shutdown, we’re here to help. Call 1.800.880.5328 or visit one of our branch locations for more information.

We're Invested

Retirement, investments, financial planning for every stage of life—learn about it all here at Invested,
a blog from your Wealth Management Advisors at Kirtland Financial Services.

529 Plans and Financial Aid Eligibility

By Kirtland Financial Services

Facebook
Twitter
LinkedIn

If you’re thinking about opening a 529 account, or if you’ve already opened one, you might be wondering how 529 funds will affect your child’s financial aid eligibility.

A general word about financial aid

The financial aid process is all about assessing what a family can afford to pay for college and trying to fill the gap. To do this, the federal government and colleges examine a family’s income and assets to determine how much a family should be expected to contribute before receiving financial aid. Financial aid formulas weigh assets differently, depending on whether they are owned by the parent or the child. So, it’s important to know how your 529 account will be classified, because this will affect the amount of your child’s financial aid award.

Financial aid can consist of loans (which must be repaid in the future), grants or scholarships, and/or a work-study job. The typical financial aid package contains all of these types of aid. There are no guarantees that a larger financial aid award will consist of favorable grants and scholarships — your child may simply get more loans.

The two main sources of financial aid are the federal government and colleges. In determining a student’s financial need, the federal government uses a formula known as the federal methodology, while colleges use a formula known as the institutional methodology. The treatment of 529 accounts may differ, depending on the formula used.

How is financial need determined?

Though the federal government and colleges use different formulas to assess financial need, the basic process is the same. You and your child fill out a financial aid application by listing your current assets, income, and personal family information (exactly what assets must be listed will depend on the formula used). The federal application is called the FAFSA, which stands for Free Application for Federal Student Aid; colleges generally use an application known as the CSS Profile.

Your family’s asset and income information is run through a specific formula to determine your expected family contribution, or EFC. Your EFC represents the amount of money that your family is considered to have available to put toward college costs for that year. The federal government uses its EFC figure in distributing federal aid; colleges uses their own EFC figure when distributing their own institutional aid.

Note: Starting with the 2024-2025 FAFSA, the term “student aid index” (SAI) will replace EFC on the FAFSA. The change attempts to clarify what this figure actually is: an eligibility index for student aid, not an exact dollar amount of what a family can or will pay for college.

The difference between your EFC/SAI and the cost of attendance (COA) at your child’s college equals your child’s financial need. The COA generally includes billed costs for tuition, fees, room and board and a designated sum for non-billed costs for books, transportation, and personal expenses. It’s important to remember that the amount of your child’s financial need will vary, depending on the cost of a particular school.

The results of your FAFSA are sent to every college that your child applies to. Every college that accepts your child will then attempt to craft a financial aid package to meet your child’s financial need. In addition to the federal EFC/SAI figure, colleges that use the CSS Profile form will have that EFC/SAI figure too. Eventually, the financial aid administrator will create an aid package made up of loans, grants, scholarships, and/or a work-study job. Some of the aid will be from federal programs and the rest will be from the college’s own funds. Keep in mind that colleges aren’t obligated to meet all of your child’s financial need. If they don’t, you’re responsible for the shortfall.

The financial aid treatment of 529 plans

Now let’s see how a 529 account affects federal financial aid.

Under the federal methodology, 529 plans — both savings plans and prepaid tuition plans — are considered an asset of the parent if the parent is the account owner. In this case, the value of the account is listed as an asset on the FAFSA. Under the federal

formula, a parent’s assets are assessed (counted) at a rate of no more than 5.6%. This means that every year, the federal government treats 5.6% of a parent’s assets as available to help pay college costs. (By contrast, student assets are assessed at a rate of 20%.)

There are a few points to keep in mind regarding the classification of 529 plans as a parent asset:

  • A parent is required to list a 529 plan as an asset only if he or she is the account owner of the If a grandparent is the account owner, then the 529 plan doesn’t need to be listed as an asset on the FAFSA (this doesn’t seem fair, but grandparent-owned 529 accounts are counted in a different way, discussed below.)
  • Any student-owned or UTMA/UGMA-owned 529 account is also reported as a parent asset if the student files the FAFSA as a dependent student. A 529 account is considered an UTMA/UGMA-owned account when UTMA/UGMA assets are transferred to a 529 account on behalf of the same beneficiary.
  • If your adjusted gross income is less than $50,000 and you meet a few other requirements, the federal government doesn’t count any of your assets in determining your So your 529 account wouldn’t affect your child’s financial aid eligibility at all.

Withdrawals from a parent-owned 529 account that are used to pay the beneficiary’s qualified education expenses aren’t classified as either parent or student income on the FAFSA the following year.

Now, what about grandparent-owned 529 accounts? Grandparent-owned accounts are not listed as an asset on the FAFSA. However, withdrawals from a grandparent-owned 529 account are counted as student income on the FAFSA the following year. Student income is assessed at 50%, which means that a student’s eligibility for financial aid could decrease by 50% in the year following the withdrawal. To avoid having a distribution from a grandparent-owned 529 account count as student income, a grandparent can delay taking a distribution from the 529 plan until any time after January 1 of the grandchild’s sophomore year of college (because there will be only one FAFSA left to complete, and it will count income from two years prior.) Another option is to wait and take a 529 distribution after the grandchild graduates and use the funds for student loan repayment (there is a $10,000 lifetime limit per 529 plan beneficiary on repaying student loans).

Note: Starting with the 2024-2025 FAFSA, students will not need to report distributions from a grandparent-owned 529 plan. Students won’t be required to report any type of cash support.

Regarding the institutional methodology, 529 plans are generally treated the same as under the federal methodology. But check with your child’s individual college for more information.

Note: Before investing in a 529 plan, please consider the investment objectives, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses, which contain this and other information about the investment options, underlying investments, and investment company, can be obtained by contacting your financial professional. You should read these materials carefully before investing. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated. Investment earnings accumulate on a tax-deferred basis, and withdrawals are tax-free as long as they are used for qualified education expenses. For withdrawals not used for qualified education expenses, earnings may be subject to taxation as ordinary income and possibly a 10% federal income tax penalty. The tax implications of a 529 plan should be discussed with your legal and/or tax professionals because they can vary significantly from state to state. Also be aware that most states offer their own 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers. These other state benefits may include financial aid, scholarship funds, and protection from creditors.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal professional.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

This article was prepared by Broadridge.

LPL Tracking #1-505731

To access your investment account – click the button below. The login page for LPL will open in a new window.

If you have access issues, CONTACT KIRTLAND FINANCIAL SERVICES.

Don't Be a Victim!

You need to know about credit union impersonation scams so you can avoid becoming a victim of these nefarious tactics.

Online, Mobile, and Telephone Banking will be unavailable on Sunday, December 17 from 12:00-5:00 a.m. MST.