preface this with I'm not an expert, BUT
regarding #2....
a. don't you have to re-submit FAFSA every year? Seems like your theory is a one-and-done at best (once beneficiary designations are moved back to younger kids).
b. I'm pretty sure the EFC takes into account all college aged kids. 22 year old is only not included if not a dependent (I think). Kids aren't "independent" until out of college or 24, whichever comes first, AFAIK.
A. I'm not talking about changing the beneficiary designations - although that would work too. I'm talking about moving $$$ from child 2 to child 1 when filling out FAFSA for child 2. And I don't see why I couldn't do it every year; just lather, rinse repeat.
B. Well, it takes 22 year old into account as a member of the household size, but not as enrolled in college at the same time. Not sure what you're getting at exactly.
To spell out the idea behind #2 a little more in step-by-step fashion:
1. Current situation is, let's say, 22 year old not attending college, 17 year old junior, 15 year old sophomore. Child 1 has say $50K in 529, child 2 has $50K in 529, child 3 has $50K in 529.
2. On 9/1/2018, move $49K from child 2 529 to child 1 529 tax free.
3. On 10/1/2018, file FAFSA for child 2 first year of college - showing $1K in 529.
4. Receive financial aid offers spring 2019. Let's say there is $5K that needs to be paid out of pocket for child 2's first year of college.
5. On 10/1/2019, file FAFSA for child 2's second year of college - showing $1K in 529.
6. On 11/1/2019, move $5K from child 1's 529 to child 2's 529 tax free. Withdraw $5K from child 2's 529 and use it to pay $5K out of pocket expenses. This is a tax free withdrawal to pay for QEE for child 2.
The above can logically be extended to child 3 and to all four years of college in obvious fashion. It can also extend to ESAs. The only requirement is that child 1 not go to college (which is my current reality).
I'm just figuring there is some reason this won't work, as it is too obvious of a loophole and I know that the FAFSA and college financial aid folks are really good about closing loopholes.