FAFSA and Your Taxes (2027-28): Which Year Counts, and the New 529 Rules

Which tax year feeds which FAFSA

The FAFSA uses your prior-prior-year tax return — two years back from the aid year. This is why income changes today don't hit this fall's FAFSA.

Practical read: a raise, bonus, or Roth conversion in 2026 does not change the income on the 2027-28 FAFSA — but your 2026 return will drive the 2028-29 form. Cash from a 2026 raise or bonus that is still in your accounts on the day you sign counts as a current asset, like any other savings, if your family has to report assets. Families with 2025 AGI under $60,000 who filed none of Schedules A, B, D, E, F or H (and either no Schedule C or one with a net profit or loss of $10,000 or less), or who received a means-tested federal benefit in the last 24 months, skip the asset questions.

Opening date

The 2027-28 FAFSA opened to the general public on September 23, 2026 (Federal Student Aid announcement APP-26-10, updated Sept. 23, 2026), ahead of the October 1 statutory target. File at studentaid.gov.

What the form pulls — and how

Tax data flows in automatically through the IRS Direct Data Exchange (DDX) with your consent — the old Data Retrieval Tool (DRT) is gone, and manual transcription of AGI, tax paid, and untaxed income is no longer required for consenters. The output metric is the Student Aid Index (SAI), which replaced the Expected Family Contribution (EFC) as of the 2024-25 form.

Who should own the 529

For federal aid, ownership drives how the account is assessed:

• Parent-owned 529 — treated as a parental asset, assessed at up to 5.64% in the SAI formula.
• 529 owned by the dependent student (including a custodial 529) — reported as a parent investment, assessed at up to 5.64%, not as a student asset.
• UTMA/UGMA custodial account (not a 529) — the student's asset, assessed at 20%. Custodial accounts are the harshest place to park college money.
• Grandparent- or other nonparent-owned 529 — off-form for federal aid (0% assessment). Best-of-both-worlds for federal aid, subject to the CSS Profile caveat above.

An independent student reports their own 529 as their own investment.

Bottom line: a custodial UTMA/UGMA account is the costliest place for college money; a 529 owned by the parent or the dependent student is assessed at the parent rate, and a grandparent-owned 529 is off-form for federal aid. See our 529-to-Roth rollover guide for what to do with leftover balances after graduation.

The sibling-count change

The number-in-college adjustment was eliminated. Under the old EFC formula, a family with two kids in college at the same time roughly split the parent contribution between them. That discount is gone in the SAI formula — plan for the second kid without expecting a break just because a sibling is also enrolled. This hits middle-income families with tightly-spaced children the hardest.

AOTC coordination — no double dipping

The same tuition dollars can't fund both a tax-free 529 withdrawal and the American Opportunity Tax Credit. Most families carve out the first $4,000 of qualified expenses to claim the AOTC, then use 529 dollars for the rest. Full mechanics in our Education Tax Credits guide (or jump straight to the AOTC/LLC calculator).

Before you file — checklist

• Create or refresh StudentAid.gov accounts for the student and each parent contributor. The student needs an SSN (citizens of the Freely Associated States excepted); a parent contributor without an SSN can still create an account and sign.
• Confirm your 2025 federal return is filed and processed — DDX consent pulls from IRS records.
• Work out who your FAFSA parent contributors are before you start (StudentAid.gov's "Who's my FAFSA parent?" wizard). Married parents, or unmarried parents living together, both count. If they filed a joint return, one parent can report for both, and separate filers are each invited. Divorced or separated: the parent who provides more of your financial support, plus that parent's current spouse (your stepparent), whatever the stepparent contributed.
• Gather asset snapshots as of the day you sign: bank balances, brokerage, and 529 balances owned by a parent or by the dependent student (grandparent 529s are off-form for federal).
• Confirm each target school's CSS Profile requirement and priority deadline (often earlier than FAFSA).
• Check your state's aid deadline as well as each school's; some are earlier than you expect.

Frequently asked questions

Which tax year does the 2027-28 FAFSA use?

The 2027-28 FAFSA uses your 2025 federal tax return — the prior-prior-year rule. Whatever you file for 2025 is what the aid formula sees when you fill out the 2027-28 form.

Do grandparent 529 withdrawals still hurt financial aid?

For FEDERAL aid, not as income: the FAFSA removed the cash-support question, so distributions from grandparent- and other nonparent-owned 529s are no longer reported as student income. If the money is paid to the student rather than the school, whatever is still in the student's account on the day the FAFSA is signed is a student asset. For roughly 200 mostly private colleges that use the CSS Profile for institutional aid, grandparent 529s CAN still count — the loophole is federal-aid-only.

My income went up in 2026 — does it hurt this fall's FAFSA?

Not through the income questions. The 2027-28 FAFSA takes income from your 2025 return, so a 2026 raise, bonus or Roth conversion doesn't change them; your 2026 return drives the 2028-29 form. Cash from a 2026 raise or bonus that is still in checking, savings or investments on the day you sign counts as a current asset, like any other savings, if your family has to report assets. Families with 2025 AGI under $60,000 who filed none of Schedules A, B, D, E, F or H (and either no Schedule C or one with a net profit or loss of $10,000 or less), or who received a means-tested federal benefit in the last 24 months, skip the asset questions.

Is the sibling discount gone?

Yes. The FAFSA overhaul eliminated the number-in-college adjustment, so families with two or more kids in school simultaneously no longer get the old discount on the parent contribution.

Related

• 529-to-Roth Rollover (SECURE 2.0 §126)
• Education Tax Credits (AOTC vs LLC)
• AOTC / LLC Calculator
• Roth Conversion (2026)