Changing UTMA into 529 - too late?

[GossamerWings]

<p>My son is a junior and I was about the move his UTMA account into a 529. The UTMA is all in cash and I plan to keep the 529 in cash as well. </p>

<p>Someone on the board had suggested doing this because a smaller percentage of his 529 will be counted by FAFSA? I'm just confirming this, and that there is no downside to moving the money. And...is it too late to even be doing this?</p>

<p>Thanks!</p>

[vballmom]

<p>There’s no downside and it’s not too late. What matters is where the money is at the time you file FAFSA, which for your son will be January 2010. Make sure your broker or state offers an all-cash 529 option, since the usual age-based 529s for a junior would be 20-25% in equities.</p>

[heyalb]

<p>Question — how can FAFSA count a 529 at *anything less *than 100%? I mean, isn’t a 529 specifically for college payments?</p>

<p>Why wouldn’t FAFSA include 100% of those monies in calculating EFC?</p>

[ttparent]

<p>It depends on the names of the account holder of the 529 account. If it is under the parents name with the child as the beneficiary, it counts as parents asset and count a lot less for FAFSA. I believe UTMA automatically becomes child property when the child turns 18. This is why you want to transfer. It is a funny accounting rule/regulation, but that is how the rule is set up.</p>

[vballmom]

<p>To clarify, the UGMA funds must be transferred to a student-owned 529, also known as a custodial 529. They cannot be transferred to a parent-owned 529 because the title of the 2 accounts (the original UGMA and custodial 529) must be the same, ie owned by the student. The limitation here is that parent-owned 529s can be transferred from one student to another (or even used by the parent him/herself) while student-owned 529s can only be used by the student who is named on the account.</p>

<p>FAFSA assesses 529 funds, whether owned by the student or the parent, at the parent rate of 5.6% per year. Student-owned accounts, such as UGMAs or student checking/savings accounts, are assessed by FAFSA at the rate of 20%. It’s true that 529s can only be used for qualified educational expenses and so their intent is that they be 100% used up by the time the student graduates.</p>

<p>As a side point, grandparent-owned 529s for the benefit of the student are not reported at all in the FAFSA formula.</p>

<p>Edited: I’m using UGMA and UTMA interchangeably but there are some minor differences. The age of majority depends on the state; most are 18 but some are 21.</p>

[heyalb]

<p>

FAFSA assesses 529 funds, whether owned by the student or the parent, at the parent rate of 5.6% per year. It’s true that 529s can only be used for qualified educational expenses and so their intent is that they be 100% used up by the time the student graduates.

</p>

<p>Thanks, vballmom. This spells it out well.</p>

<p>I am, however, still puzzled by the mere 5.6% per year assessment. If there’s an assumption that my kids will take 20 years to complete school, I’m calling my shrink.</p>

[vballmom]

<p>Speaking of taking 20 years to complete school, there was an article in the SJ Merc yesterday about how SJSU is trying to kick out “super” seniors:</p>

<p>

Calling all longtime San Jose State University seniors: Your diploma is waiting.</p>

<p>With too few seats for too many applicants, the university is trying to make room by showing “super seniors” the door. A startling new analysis shows that about 1,500 students have perched at senior status for at least three years. Of these, 35 have been enrolled at SJSU for at least a decade. </p>

<p>Two particularly scholarly souls have studied for 15 years, each earning about 360 units toward a bachelor’s degree — enough to have graduated three times over. That’s how long it takes to become a doctor, then a lawyer, then earn a Ph.D.

</p>

<p>My thinking is that if my sons haven’t graduated in 5 years, they’re on their own.</p>

[GossamerWings]

<p>vballmom…thanks. Yes, I very carefully chose the option for the 529 to be invested in 100% money market, versus the age-based option. Not taking any chances…!!</p>

[countrymouse]

<p>vballmom posted: As a side point, grandparent-owned 529s for the benefit of the student are not reported at all in the FAFSA formula.</p>

<p>I have read many posts on these message boards say that college bills paid from a 529 owned by a grandparent must be declared on the FAFSA as “bills paid on your behalf”, and that then they will be counted as untaxed income for the student on the next year’s FAFSA. But then I read this from FinAid.org that says probably not:</p>

<p>[FinAid</a> | Saving for College | Section 529 College Savings Plan Loophole](<a href=“Your Guide for College Financial Aid - Finaid”>Your Guide for College Financial Aid - Finaid)</p>

<p>Any thoughts on this?</p>

[rgbsanta]

<p>Grandparents have a UTMA for their granddaughter, how is this reported on
the FAFSA? (it was reported on the CSS)</p>

[vballmom]

<p>The value of the UTMA must be reported as a student asset on FAFSA regardless of who the custodian is. The UTMA would have the child’s social security number on it and any dividends or capital gains would be reported on the child’s tax return.</p>