John Hupalo, Founder and CEO, Invite Education

Starting March 17, college basketball’s March Madness will happily divert our attention from the current FAFSA Fiasco, student loans and other education issues.

Teams will be selected, brackets formed, games played and at least one Cinderella will likely emerge as a bracket buster. In that spirit, I sat down with my friend Patricia Robert, Chief Operating Officer of Gift of College, and author of Route 529, to talk about 529 Plans. One topic: busting the three 529 myths that bother us the most:   

  • 529s can only be used for traditional 4-year colleges
  • Only parents of beneficiaries can open accounts
  • 529s substantially reduce financial aid

The following is an edited excerpt of the full interview which can be found here.

JH:         What is #1 on your list of 529 myths?

PR:        529s are just for a four-year traditional college and if your child doesn’t go that route, it can’t be used at all. There couldn’t be anything further from the truth. There are so many options for which these plans can be used. The misunderstanding about the very broad use is something that I find really frustrating and I’m out to bust that myth.

JH:         How about another myth?

PR:         You have to be the parent of the account beneficiary to open the account. Not true. Grandparents, aunts, uncles, godparents, even friends and neighbors want to get started saving for a child they love. You do not have to be the parent to open the account.

JH:         For me, the myth that I hear that I most want to bust: “Someone told me that if I save for college, my child is going to get less financial aid”. Wrong!  Please talk to us about that.

PR:        It is a big misunderstanding that 529 accounts will have a significant adverse impact on federal financial aid eligibility. Not true. Only 5.64% of the account value will be considered in the current federal financial aid formula.

So, with $10,000 saved, aid eligibility will be reduced by $564. It is wrong to assume that saving is somehow not a good strategy. It is much better than holding out hope for financial aid, which largely often is student loans that need to be repaid. For federal financial aid purposes, set this worry aside.


In addition to myth busting, we also discussed recent FAFSA® changes that are very beneficial to 529 savers:

  • Sibling accounts are no longer reported on the FAFSA
  • The grandparent penalty has been eliminated. Rather than counting the 529 gift from a grandparent as untaxed student income, which was heavily weighted to reduce financial aid, grandchildren are no required to report any 529 gifts from grandparents. Now, every hard earned dollar goes to the grandchild without penalty — just as the grandparents intended.

Although we touched on the expanded uses of 529 beyond college when we discussed myth 1, we later dove a little deeper into the many of the expanded uses in more detail including:

  • Using 529 accounts for K-12 Tuition
  • Paying down up to $10,000 of student loans
  • Rolling over 529s into Roth IRAs as long as several conditions are met.

And, of course, 529 proceeds can now be used for certain expenses related to approved apprenticeships.

In closing, I’ll leave you with Invite Education’s two favorite phrases:

  • Student loans should be the last resort, not the first option to pay for college.
  • Saving a dollar today is better than borrowing one tomorrow®

About the author:

John Hupalo is the founder and CEO of Invite Education.