How 529 funds affect financial aid

Our youngest son will start college next year and is eyeing a costly private school. Since we'll have two kids in college then, he'll probably apply for need-based financial aid. But some savings have been set aside for him in a 529 plan. Will that money affect his eligibility for aid?

It depends on who holds the 529 account. If you and your spouse do, the 529 plan savings are considered your assets. Since a portion of your total assets-no more than 5.64 percent, after subtracting an asset-protection "allowance" based on the age of the older parent-gets factored into the financial aid equation, the 529 plan savings will slightly reduce your son's chance of qualifying for need-based aid. If it's a custodial account and your son is both the account holder and the beneficiary, the 529 assets are excluded from the need-based aid calculation and won't affect his eligibility. That's also true if someone other than you or your child-such as a grandparent, aunt, or uncle-is the account holder.