The 529 grandparent loophole has become one of the more valuable college funding strategies available, yet awareness remains strikingly low. Thanks to the FAFSA Simplification Act, distributions from grandparent owned 529 accounts for a grandchild's qualified expenses are no longer counted as student income on the FAFSA. 

Under the old rules, a $10,000 distribution could slash aid eligibility by up to $5,000, but that penalty is now gone, letting grandparents fund an education without derailing financial aid. Despite the advantage, adoption lags badly, with only 14% of Americans using or intending to use 529 plans. 

Advisors should flag a couple of caveats: more than 200 private institutions use the CSS Profile rather than the FAFSA and still count grandparent held assets, and gift tax thresholds apply above $19,000 for singles and $38,000 for couples per grandchild. 

Finsum: With the Roth rollover option, 529s can deliver real multigenerational planning value.