Under the federal financial aid formula, parent-owned accounts in a 529 savings program have very little impact on student eligibility for need-based aid. If you shift taxable investments to your child to capture income-tax savings, you may severely compromise his or her need-based aid eligibility. Student-owned assets (including Coverdell education savings accounts) are assessed at a much higher rate.
Taxable investments in your own name can hurt as well. The "simplified expected family contribution (EFC)" plan allows many low- and moderate-income families to exclude all assets from the aid formula. However, just one dollar of capital gains can disqualify your children from using the simplified EFC. Section 529 plans do not produce capital gains.
Private colleges may have their own ways of looking at 529 plans when doling out their own funds. You should ask the colleges about their policies when your son or daughter is filling out applications. Think about changing your 529 account beneficiary to another family member, if it helps your case.