I think I know the answer, but thought I would check. My D1’s freshman year is covered. We’re expecting a small gap in her future years as costs rise but her aid does not. She is named as a beneficiary in a UGMA account in her grandmother’s name.
Would it be better to withdraw from that account, even though the withdrawals are taxable for her, or to take part of a federal loan?
Not enough information. What amount of UGMA withdrawal? How much tax on the taxable withdrawal? How is the UGMA invested and how much is it making? What are the terms of the loan? What is your daughter’s expected repayment plan if she takes the loan? Can UGMA withdrawals be structured over time such that no tax is owed? (If your daughter stays in the 10% or 15% tax brackets, long term capital gains are taxed at 0%.)
Also, your daughter isn’t simply the beneficiary of the UGMA, she actually owns it, with her grandmother (presumably) named as account custodian until your daughter reaches the age of majority.
Yes, you’re correct about the ownership. I knew that, but misspoke.
Hmm… I’ll have to do a bit of research to answer these questions. Thanks for pointing me in the right direction to figure this out ahead of time! I’m projecting that she’ll fall short only about $1000 next year, and I have time to help her cover it.
Another consideration - how old is your daughter, and is she financially responsible? If she’s close to the age of majority (as old as 21 in some states) and she’s more inclined to spend the UGMA money on spring break instead of tuition, it might be advisable to liquidate the UGMA while she’s still a minor and use the funds for her benefit.
She’s almost 19. A few years ago I might have been more concerned. However, since earning her own money she seems to have a much better grasp on its value! Even if left completely intact, I’m not worried about how she’s handle the account when she hits 21.