It will be factored in when considering financial aid eligibility. Unfortunately, having a 529 Plan may affect your child’s eligibility for financial aid in the future.
If a parent owns the account, in 2016 the financial aid office will take 5.64% of the account’s value (and all other non-retirement investment accounts) into consideration when determining how much financial aid a student can receive.
So if the student would have gotten $5,000 in aid one semester, but the parents have a 529 plan with $50,000 in it, the benefit has now been shrunk by 5.64% of $50,000, and the student will receive about $2,180 in aid that semester.
If the 529 is instead owned by grandparents or another non-parent family member, eligibility is reduced by up to 50% of the aid received for the next year, after the income from the 529 has been reported.
Educational institutions may have their own restrictions as well. For this reason, some people seek to save for college in other vehicles that are not included in the FAFSA assessment, such as cash value of life insurance.
What is the Federal Supplemental Education Opportunity Grant?
What is a Student Loan?