How 529s and UTMAs Impact the FAFSA: A Tactical Guide to Financial Aid

The 2027-28 FAFSA opened on September 23, 2026, eight days ahead of its usual October 1 start and earlier than the form has ever been available, Money reported. For parents of high school seniors, a question that sat in the background for years is suddenly concrete: does it matter where the college money is saved?

It does, a lot. On the FAFSA, a 529 plan owned by a parent counts at no more than 5.64% of its value, while a UTMA or UGMA custodial account in your child’s name counts at a flat 20%. On a $10,000 balance, that’s the difference between up to $564 and a full $2,000 counted against your child’s need-based aid, as Saving for College explains in its guide to 529 plans and financial aid.

This guide shows how the formula treats each kind of account under the current rules, corrects three myths that still circulate, and walks through the moves that can protect your child’s eligibility, whether college is one year away or seventeen. For how these accounts compare on taxes, flexibility, and control, see Comparing Investment Accounts for Kids: 529 vs. UTMA vs. Roth IRA vs. 530A.

How the FAFSA counts what you’ve saved

The FAFSA doesn’t produce a dollar amount of aid. It produces a Student Aid Index, or SAI. A college typically takes its cost of attendance, subtracts the SAI and any other aid, and treats what’s left as your child’s financial need, as Stockton University’s financial aid office lays out. That need is what qualifies a student for Pell Grants, Federal Work-Study, subsidized federal loans, and some state grants. Unsubsidized federal loans and PLUS loans aren’t based on need.

The Pell Grant shows how directly the SAI bites. Outside the special rules for maximum and minimum awards, a student’s Pell Grant is the maximum award minus the SAI, according to the Education Department’s handbook for financial aid administrators. In that range, every dollar your savings add to the SAI is a dollar less in grant money.

Parent assets: a 12% slice, then your income bracket

For a dependent student, the formula adds up the parents’ cash, savings, and investments, a total that includes 529 plans, and counts 12% of it as available for college, according to the Education Department’s 2027-28 Student Aid Index guide. That amount is added to the parents’ available income, and the combined figure is assessed on a sliding scale from 22% to 47%. Multiply the 12% by those rates and you get the real weight of a parent asset: from 2.64% for families in the lowest bracket to 5.64% at the top, which is where the familiar 5.64% figure comes from.

There used to be a cushion. The asset protection allowance shelters part of a family’s savings before the 12% applies, but in the 2027-28 formula it is $0 for parents of every age, married or single. If your family reports assets, every dollar counts from the first one.

Student assets: a flat 20%

Your child’s own assets get no allowance and no sliding scale. The formula takes 20% of the student’s cash, savings, and investments and adds it straight to the SAI. Your child’s income is weighted even more heavily: after an allowance of $12,220 on the 2027-28 form, plus taxes paid, the formula counts half of what’s left.

The snapshot date

Assets are reported as of the day the FAFSA is signed, according to the Education Department’s guidance on filling out the form. Income works differently. The FAFSA uses tax information from two years before the school year, so the 2027-28 form draws on 2025 tax returns.

Where each account lands on the FAFSA

The split between 5.64% and 20% isn’t really about 529s versus UTMAs. It’s about whose money it is under the FAFSA’s rules, and 529 plans get special treatment. Here’s how common accounts are counted for a dependent student.

Two more details favor 529 savers. Growth inside a 529 isn’t reported, and qualified withdrawals from any 529 are never counted as the student’s income, Saving for College notes. A UTMA gets neither break: its balance counts at 20%, and its dividends and realized gains are your child’s taxable income, which can show up on later FAFSAs.

If you’re divorced or separated, the parent who provided more than half of your child’s financial support over the past 12 months is the one who completes the FAFSA, and a 529 owned by the other parent isn’t reported. Protecting Assets in the Event of Divorce covers custody of the accounts themselves.

Three rules many guides still get wrong

Your other children’s 529s don’t count. For years, parents were told to report every 529 they owned, including accounts for younger brothers and sisters. That changed with the new FAFSA. In February 2024, the Education Department clarified that a 529 is reported as a parent asset only if it’s designated for the student filing the form, and its current handbook says accounts for other children in the family are not included. Saving for College’s September 2026 update on sibling accounts reaches the same conclusion.

A 529 your child owns still counts as yours. A custodial 529, often funded with money from a UTMA or UGMA, is owned by your child. Because it’s designated for a dependent student, it’s reported as a parent asset, with the same 5.64% ceiling as your own 529 rather than the 20% that applies to the UTMA itself.

Grandparents’ 529s are now fully invisible. Before the 2024-25 FAFSA, a grandparent-owned 529 stayed off the form, but its withdrawals came back the next year as untaxed student income, which could significantly cut aid. That penalty is gone: withdrawals from 529s owned by grandparents or other relatives are no longer reported, according to Saving for College.

What the 20% rate costs over four years

The gap compounds because the asset questions come back every year. Take a hypothetical family with $40,000 saved for their daughter’s college costs, whose income puts them in the top bracket of the parent formula. They file their first FAFSA in her senior year of high school and spend about $10,000 of the savings each year after that.

• In a UTMA (your child’s asset, 20%)
• In a 529 you or your child own (parent asset, up to 5.64%)

Show the numbers

Added to the SAI on each FAFSA, by where the savings are held

FAFSA	In a UTMA	In a 529	Difference
First $40,000	$8,000	$2,256	$5,744
Second $30,000	$6,000	$1,692	$4,308
Third $20,000	$4,000	$1,128	$2,872
Fourth $10,000	$2,000	$564	$1,436
All four FAFSAs	$20,000	$5,640	$14,360

Hypothetical illustration for a dependent student whose parents are in the top bracket of the 2027-28 formula and must report assets. It assumes the balance shown on the day each FAFSA is signed, with about $10,000 spent each year and no investment growth. The 529 amounts are the most a parent asset can add; for families in lower brackets they are smaller, as little as 2.64% of the balance. Not a prediction of any family’s aid.

Held in a UTMA, the savings add $8,000 to the SAI on the first FAFSA. Held in a 529 the parents own, or in a custodial 529, the same $40,000 adds at most $2,256, a difference of $5,744. Across four FAFSAs, the UTMA adds $20,000 in all and the 529 adds $5,640, a gap of $14,360. If the daughter has that much financial need, that’s how much less need-based aid the UTMA could cost her over four years.

For a family in the lowest parent bracket, the gap is even wider. The 529 would add about $1,056 on the first FAFSA, which is $40,000 × 2.64%, or $6,944 less than the UTMA’s $8,000.

When your savings won’t affect aid at all

For many families, the account choice won’t change the FAFSA result. There are two common reasons.

Families who skip the asset questions

Under the rules in the Education Department’s current handbook, a dependent student’s family doesn’t report assets at all if any of these is true:

• The student qualifies for a maximum Pell Grant, which depends on the parents’ income, family size, and the federal poverty guidelines.
• The parents’ adjusted gross income is under $60,000, they didn’t file Schedule A, B, D, E, F, or H, and they either filed no Schedule C or showed a business gain or loss of no more than $10,000 on it.
• The student or a parent received a federal means-tested benefit, such as SNAP, Medicaid, SSI, WIC, free or reduced-price school lunch, or the earned income tax credit, in either of the two calendar years before the school year.

If one of these applies, nothing in a 529, a UTMA, or a bank account enters the formula. One trap: filing one of those schedules, such as Schedule D to report a stock sale, rules out the income route even when income is under $60,000.

Families who won’t have need anyway

If your SAI is higher than a college’s cost of attendance, your child has no calculated need there, and moving money between accounts won’t change your federal need-based aid at that school. Savings also don’t affect merit scholarships, which are awarded for academic, athletic, or other achievements, Saving for College notes, and they don’t affect your child’s access to unsubsidized federal loans, which aren’t need-based.

Six ways to protect aid eligibility

If your family will report assets and may qualify for need-based aid, these moves can keep your child’s SAI as low as the rules allow. The earlier you make them, the easier they are.

Keep college money in a 529 you own

For new college savings, a 529 you own is the FAFSA-friendly default. It counts at no more than 5.64%, its growth isn’t reported, and qualified withdrawals never count as your child’s income. If you also want to save for goals beyond college, like a first car or a down payment, Setting Realistic Goals: How to Balance College Savings and General Wealth can help you split the money, and The Complete Guide to 529 College Savings Plans covers choosing a plan.

Consider moving a UTMA into a custodial 529

Because a custodial 529 owned by a dependent student is reported as a parent asset, moving UTMA money into one can cut its FAFSA weight from 20% to 5.64% or less, Saving for College notes. Before you do it, weigh three catches:

• You’ll probably have to sell. Federal law lets 529 plans accept contributions only in cash, under Section 529 of the tax code, so stocks or funds in the UTMA must be sold first. That can create capital gains taxed to your child, sometimes at your tax rate under the kiddie tax. Navigating the 2026 Kiddie Tax Thresholds explains the math.
• The money is still your child’s. A UTMA deposit is an irrevocable transfer to your child, and the custodian manages it for the child’s benefit until the custodianship ends, as FINRA has reminded brokerage firms. A custodial 529 keeps that ownership: in most cases the beneficiary can’t be changed, and your child takes control on reaching legal age. What Happens at the Age of Majority? covers that handoff.
• Timing matters. Gains realized in a FAFSA income year count as your child’s income, as explained below, so a conversion is cleanest before those years begin.

Spend UTMA money on your child before you file

Because the FAFSA records assets on the day it’s signed, money spent from a UTMA before you file isn’t counted. Paying from the UTMA for things your child genuinely needs, such as a laptop for college, test prep, or a summer program, lowers the student assets you report. Keep the custodial rules in mind: the money can be spent only for your child’s benefit, so you can’t move it into your own accounts, and using it for everyday support you already provide can raise legal and tax questions. UTMA vs. UGMA: What’s the Difference? explains how custodial accounts work, and Liquidating Safely covers the order in which to draw accounts down once college begins.

Time sales and withdrawals around the FAFSA years

Because the FAFSA looks back two years for income, the tax years that count for a four-year student run from January of their sophomore year of high school through December of their sophomore year of college. For a student starting college in fall 2027, the first FAFSA uses 2025, the year that began halfway through their sophomore year of high school. Large capital gains or withdrawals in those years raise your child’s income on the form. Small amounts may fit within the $12,220 allowance, but anything above it is counted at 50%. If you plan to sell a UTMA’s investments, doing it before that window opens keeps the gain off every FAFSA. High School (Ages 15-18) has more on planning through the high school years.

Let grandparents give in the FAFSA-friendly way

Grandparents who want to help have two good options. They can give to you, so the money goes into your 529 and counts as a parent asset, or they can open their own 529 for your child, which the FAFSA ignores entirely. If your child may apply to colleges that use the CSS Profile, keep in mind that those schools generally count every 529 that names your child as beneficiary, whoever owns it. Discussing Wealth with Grandparents has ideas for starting that conversation.

If you’d like birthdays and holidays to build your child’s college fund, GoodNest can help collect those gifts. Family and friends give from your child’s GoodNest page, often alongside a small keepsake like a book, and send the money straight to you by Zelle, Venmo, or PayPal. GoodNest never holds or invests it, so you decide where it goes, including a 529 you own, where it counts at no more than 5.64% on the FAFSA instead of the 20% it would carry in a UTMA. If you choose a 529 plan as the destination on your child’s page, the page tells family that’s where their gifts go. The GoodNest Guide to Asking for Investments Instead of Toys has scripts for starting the conversation.

Fund your own retirement first

Retirement accounts are invisible to the FAFSA’s asset questions. The value of 401(k)s, pensions, and IRAs other than education accounts isn’t counted as an asset, though withdrawals count as income, according to the handbook. Your home and a family business with 100 or fewer full-time employees are excluded too. So putting your own retirement first, the idea behind The “Oxygen Mask” Rule of Parental Finance, doesn’t cost your child aid.

CSS Profile colleges count more

Nearly 200 colleges also require the CSS Profile to award their own grants, according to Saving for College’s guide to sibling accounts, and that form closes several FAFSA gaps. CSS Profile schools count every 529 that names your child as beneficiary, including a grandparent’s, though not your other children’s 529s, and they count parent assets at up to 5% after certain allowances. Student assets are assessed more heavily, at 25%, and most of these schools count at least part of your home equity, according to Saving for College’s comparison of the two forms. Each college applies its own version of the formula, so check the aid pages of the schools on your child’s list.

Roth IRAs and Trump Accounts

Custodial Roth IRAs

A Roth IRA in your child’s name is a retirement account, so its balance isn’t reported as an asset, though withdrawals count as income. For a working teenager, that makes it a FAFSA-friendly place to save, as long as the money stays put through the FAFSA years. The Custodial Roth IRA covers the rules.

Trump Accounts

The Education Department hasn’t said how Trump Accounts should be reported, and the answer could go either way. Because the accounts are a type of IRA, and the FAFSA excludes noneducation IRAs, a Vanguard explainer expects no effect on aid. If they are treated as an ordinary student asset instead, up to 20% of the balance could count, the Plan Sponsor Council of America reported in August. Until guidance arrives, plan as if either could be true. The 530A Trump Account Explained covers how the accounts work, and Comparing Investment Accounts for Kids sets all four account types side by side.

The bottom line

On the FAFSA, ownership matters more than the account’s label. Money in a 529 owned by you or your child counts at no more than 5.64%, the same money in a UTMA counts at 20%, and a grandparent’s 529 doesn’t count at all. To keep your child’s aid eligibility as high as the rules allow:

• Put new college savings in a 529 you own, and keep money meant for college out of UTMAs.
• If you already have a UTMA, decide early whether to spend it on your child, move it into a custodial 529, or keep it for life after college.
• Make any big sales before January of your child’s sophomore year of high school, and remember that assets are counted on the day you sign the FAFSA.
• Ask grandparents to give to you or to open their own 529, and check how the CSS Profile colleges on your list treat those accounts.
• Keep funding your own retirement, which the FAFSA doesn’t count.

If your child is a high school senior, the 2027-28 FAFSA is open now, and some states award aid on a first-come, first-served basis, so file early. If your child is younger, the account you choose for this year’s birthday money is the one the FAFSA will see later. Comparing Investment Accounts for Kids shows how each option fits the rest of your plan.

Frequently asked questions

Does a 529 plan hurt financial aid?

Only a little, if you or your child owns it. On the FAFSA, a 529 owned by a parent or by a dependent student counts as a parent asset, which adds at most 5.64% of its value to the Student Aid Index, or $564 per $10,000. The growth inside the account isn’t reported, and qualified withdrawals don’t count as your child’s income. A 529 owned by a grandparent or another relative isn’t reported at all.

How much does a UTMA account reduce financial aid?

A UTMA or UGMA account belongs to your child, so the FAFSA adds 20% of its value to the Student Aid Index, with no allowance: $2,000 for every $10,000. For a student with financial need, that can mean up to $2,000 less need-based aid per $10,000 in each year the money is still in the account, and the account’s investment income can count as your child’s income too.

Do I report my other children’s 529 plans on the FAFSA?

No. Under the current FAFSA, a 529 counts as a parent asset only if it’s designated for the student filing the form, so accounts you own for your child’s brothers and sisters aren’t included. This changed with the 2024-25 FAFSA, and some older guides still say otherwise. CSS Profile colleges don’t ask about siblings’ 529s either, but they do count every 529 that names the student as beneficiary.

Should I move my child’s UTMA into a 529 before filing the FAFSA?

It can help. A custodial 529 owned by a dependent student is reported as a parent asset, so the money’s weight drops from 20% to at most 5.64%. But a 529 accepts only cash, so the UTMA’s investments must be sold, which can create taxable gains, and gains in the FAFSA’s income years count as your child’s income. The money also stays your child’s: in most cases the beneficiary can’t be changed, and your child takes control on reaching legal age. Ideally, decide before January of your child’s sophomore year of high school.

Do grandparent-owned 529 plans count on the FAFSA?

No. A 529 owned by a grandparent or other relative isn’t reported as an asset, and since the 2024-25 FAFSA, withdrawals from it no longer count as the student’s income. Colleges that use the CSS Profile are different: they generally count every 529 that names the student as beneficiary, whoever owns it.

Sources

• Adam Hardy, Money, “The 2027-2028 FAFSA Is Here Early: What’s New and When to File” (September 24, 2026).
• Jeffrey Trull, Saving for College, “Does a 529 Plan Affect Financial Aid?” (updated September 8, 2025).
• Stockton University Office of Financial Aid, “How Need is Determined” (accessed October 1, 2026).
• Federal Student Aid, U.S. Department of Education, 2026-2027 Federal Student Aid Handbook, Application and Verification Guide, Chapter 3, “Student Aid Index (SAI) and Pell Grant Eligibility” (last modified August 17, 2026).
• Federal Student Aid, U.S. Department of Education, “2027-28 Student Aid Index (SAI) and Pell Grant Eligibility Guide” (Version 1, June 2026).
• Federal Student Aid, U.S. Department of Education, 2026-2027 Federal Student Aid Handbook, Application and Verification Guide, Chapter 2, “Filling Out the FAFSA Form” (last modified August 17, 2026).
• Federal Student Aid, U.S. Department of Education, Electronic Announcement GENERAL-24-07, “Errata: Application and Verification Guide (2024-2025 Federal Student Aid Handbook)” (February 5, 2024).
• Jeffrey Trull, Saving for College, “Does a Sibling’s 529 Plan Assets Hurt Financial Aid Eligibility?” (updated September 16, 2026).
• Legal Information Institute, Cornell Law School, 26 U.S. Code § 529, Qualified tuition programs (accessed October 1, 2026).
• FINRA, Regulatory Notice 20-07, “UTMA and UGMA Accounts” (February 27, 2020).
• Mark Kantrowitz, Saving for College, “What are the Differences between the FAFSA and CSS Profile?” (updated March 11, 2022).
• Paul Mulholland, Plan Sponsor Council of America, “Will Trump Accounts Count Against Means-Tested Aid?” (August 14, 2026).

This article is for general educational purposes only and is not tax, legal, financial aid, or investment advice. It reflects the 2027-28 FAFSA formula and federal rules as of the date above, which can change. The Education Department has not issued guidance on how Trump Accounts are reported, and colleges that use the CSS Profile or their own forms apply their own rules. Examples are hypothetical. GoodNest does not provide tax, legal, or investment advice and does not hold or invest funds. For your family’s situation, consider consulting a college financial aid office, a tax professional, or a financial advisor.