Publication Date: January 22, 2004
DCL ID: GEN-04-02
Summary: Treatment of Coverdell Accounts and 529 Tuition Plans
Posted on 01-22-2004
January 2004
Subject: Treatment of
Coverdell Accounts and 529 Tuition Plans
Summary: This letter
provides clarification on the treatment of certain educational savings plans
in the determination of a student's eligibility for Federal student aid.
Dear Colleague:
We are providing clarification
to the financial aid community on the federal methodology used to calculate
eligibility for federal student. Specifically, the clarification addresses Series
EE United States Savings Bonds and assets and income from two types of educational
savings instruments - Coverdell Education Savings Accounts (formerly "Education
IRAs") and 529 Plans which may be savings plans or prepaid tuition plans.
- Coverdell Education
Savings Accounts and 529 College Savings Plans receive equal treatment in
the calculation of federal financial aid eligibility. Specifically, both can
be regarded as assets of the parent if the parent is the owner of the account,
rather than the student, and thereby displace a smaller amount of financial
aid.
- Distributions from
Coverdell Education Savings Accounts and 529 College Savings Plans that are
not subject to federal income tax are not counted as parent or student income
in the determination of federal financial aid eligibility. Distributions for
qualified educational expenses therefore do not reduce financial aid eligibility.
- The value of a 529 Prepaid
Tuition Plan is not counted as an asset of either the owner or the beneficiary.
Distributions are applied to the beneficiary's higher education expenses and
reduce the cost of attendance.
- Distributions from 529
Prepaid Tuition Plans are not counted as parent or student income in the determination
of financial aid.
- The value of Series
EE United States Savings Bonds is regarded as an asset of the owner of the
bond(s).
Please refer to the U.S.
Department of Education Financial Aid Handbook at www.
ifap.ed.gov for more information.
Sincerely,
Sally Stroup
Assistant Secretary for
Postsecondary Education
