<p>When my son was born, we put money aside, in his name, for college. In 2000, we moved that money to a 529c plan upon the suggestion of our financial adviser. At that time we had to pay capital gains taxes on the profit.</p>
<p>The 529c is now worth considerably less than it was when we moved the money: it has lost thousands of dollars. I wonder if my son will get a "capital loss" tax refund.</p>
<p>I have filled out a couple of "dummy" FAFSA worksheets, and the analysis shows that, had the money stayed in my name, my son would be in line for $3,000 more in Pell Grant than he is with the same money in his name! By the time you multiply that by 4 years of college, the lost Pell Grant money is MORE than what we saved. The net effect is that I have taken money away from my son, rather than give it to him.</p>
<p>My adviser said we cannot spend this money away by year-end, which is what the FastWeb book says to do, but she's not explaining "why" to me very well. She just says, "trust me, I'm an expert." (I hate that.)</p>
<p>At a recent college visit, I overheard someone talking about a fund that can be in the student's name but it is counted at the parent's percentage for the EFC. Does this fund truly exist? What is it? Can I move my son's money there now, before year end, so it reflects better on the FAFSA?</p>
<p>Why do they do it this way? It's enough to make me stop saving for my younger son. Isn't this the opposite of what the government wants us to do?</p>
<p>529's are funds that are in the student's name (beneficiary) but are counted as parental (account owner) assets for FAFSA. Check your 529, all of the ones I know of are set up this way. </p>
<p>To take this a step further, a grandparent (or other third party) can set up a 529 as the account owner, with the benerficiary being the grandchild, and this money does not count on FAFSA at all, it does however count for Profile schools.</p>
<p>I think the reason your financial advisor says that you can't spend the 529 money away by the end of the year is because it can only be used for qualified educational expneses, or there is a penalty.</p>
<p>the law changed in '06 with regarads to a 529 account in a students' name, at least for fafsa purposes.</p>
<p>"The 2006 law now prevents a 529 account from being treated as a student asset on a FAFSA filed by a dependent student. This means a custodial 529 will no longer be subject to the 20 percent assessment rate."</p>
<p>another good finaid website is: savingforcollege.com</p>
<p>I'd look at other advisers. Most people thought they had a mortgage broker and a real estate broker who look after their interests. People forget that it these brokers are paid by the other party not you. </p>
<p>When something as critical as your health and pocket book, it is a good idea to get a couple or several opinions.</p>
<p>I seem to recall that you can take a capital loss on taxes for a 529. Reread the prospectus of your state's 529 program. It is written in plain, common, english. Certain conditions apply. Consult your advisors.</p>
<p>Yes, your son is the beneficiary and it may bear his name, but I agree with others that 529 accounts are counted as parental assets for FAFSA, as a parent is the owner. If the money was originally in his name (in a UGMA or UTMA custodial account), and that money was moved to a 529 account, it would make sense that you had to pay taxes on the gains. But before you moved the money it was a student asset. Now it is not a student asset, but a parental asset. So I think you did do a good thing by moving it. But if your advisor is telling you it is a student assest, I think you need a second professional opinion.</p>
<p>Some 529 are custodial, and are the students'; these are usually from UTMA/UGMA accounts that were transferred. Until recently these were treated as the kid's asset and a loophole mistake on the form indicates they won't be counted at all...this may have been rectified. Other 529s are owned by the parent for the benefit of the kid and count as the parents' asset. Still others are owned by grandparent or other relative for kids benefit and these don't count at all against the kid for financial aid. There can be problems when a parent tries to transfer money in the kid's name to their own name by taking a UTMA/UGMA account and transferring funds to a PARENT owned 529 (transferring to a KID owned 529 is okay).</p>
<p>Just wondering: What happens if money is taken from a UTMA/UGMA and put in parents' account? How does it show up in the financial aid forms and what are the implications for FA?</p>
<p>Money should never be taken from a UTMA/UGMA and put into the parents' account. Your financial institution should not have allowed this kind of transfer. The minor "owns" the money in the account.</p>
<p>As noted above, it is possible to open a 529 account in the student's name, usually called a UGMA/529, custodial 529, or a student-owned 529, and transfer money from the UGMA in to the student-owned 529. This remains the asset of the student.</p>
<p>Note that the custodial 529 is owned by the student and therefore any funds in the account must be used for the student's own college and cannot be transferred to any other student. This is different from regular 529s which are owned by parents with the student as beneficiaries; in regular 529s money can be used for any type of college expense for any kid, regardless of who the named beneficiary is. This is a subtle but important point, and means that you need to be careful not to overfund the account. There was a loophole in the law that excluded student-owned 529 accounts from being reported as assets, but that loophole was closed in October effective 2009.</p>
<p>When doing the transfer from a UTMA to a student-owned 529, the money in the UTMA must be in the form of cash, not securities. This can mean that capital gains must be taken when the stocks or mutual funds in the UTMA are converted to cash. For planning purposes, this is best to do before the student's senior year of high school so that any capital gains do not increase the parents' or student's adjusted gross income during the tax year that FAFSA is first filed.</p>
<p>For people who have UTMA/UGMA accounts and several years before college, you might just want to spend that money on summer programs for the kid, computers, anything that a parent isn't legally obliged to provide, but was planning to pay for anyway. In many, but certainly not all situations this is more effective than transferring to a custodial 529 owned by the kid. Also, SAT prep courses, college visit travel expenses, definitely college applications.</p>
<p>momfromme- are you sure it's joint? Typically a UTMA accout is titled "momfromme as custodian for kidfromme under UTMA.." or something like that. In that case it is the kid's money.</p>
<p>Vballmom, I'm not sure what you mean by this:</p>
<p>"This is different from regular 529s which are owned by parents with the student as beneficiaries; in regular 529s money can be used for any type of college expense for any kid, regardless of who the named beneficiary is."</p>
<p>Do you mean if an adult has a 529 with one student listed as the beneficiary, that they can withdraw funds from that account for a different kid's qualified educational expenses? Without changing the listed beneficiary? I've never heard of that before.</p>
<p>If I own three 529 accounts, one for my kid A, one for my kid B and one for my kid C and kid A decides to never go to college, or if I don't like kid A anymore I can use the money for B or C or a niece or nephew or grandchild - there's a list of permissible people, it isn't anyone. I can also take all the money back (with penalty). That's why financial aid can count it as my asset, not the kid's. Some parents believe they should give $$ to Grandma to put it in a 529 owned by Grandma for the kid - it won't count as financial aid, but Grandma now has total control of money so what if she has to go into a nursing home on Medicaid....</p>
<p>1) UTMA funds can be spent for the benefit of the child
2) UTMA accounts are not joint accounts, they're custodial accounts with the child's money in them. Money in the child's name is legally the asset of the child.
3) Parent-owned 529 accounts can be used to pay for college expenses for someone other than the named beneficiary.</p>
<p>From finaid.org:</p>
<p>Before worrying about shifting assets, first determine who owns the asset. For example, a bank CD in the parents' name "in trust for" the child's name is generally a parent asset. The test to use is to identify who is responsible for paying taxes on the asset's earnings. For example, if the parent receives a 1099 that reported the earnings on the parent's social security number, the asset is owned by the parent. Likewise, if the earnings were reported on the child's social security number, even if the parent files taxes on behalf of the child, the asset is owned by the child.</p>
<p>To answer joshuatreemom's specific question of how exactly #3 works, I'm assuming that you simply roll the parent-owned 529 money over to the 529 account of another student in the family, or designate a different beneficiary for the original account.</p>
<p>UTMA and UTGA accounts revert to the child's name (and cease to become custodial accounts) when the child turns 18. I was just asking my advisor about how the college tuition bills should be paid from this account. He says it's okay for the child to authorize transfer of money to the parent's account for payment of tuition. It does not count as a gift for tax purposes or anything since it is merely a pass-through. Another alternative is to get checks on the account and have the chlld pay the tuition bill before he leaves home in the summer, and also transfer some of the money to a regular checking account for use at school for books, etc. I am a little nervous that child might use the money for a car or something, but my advisor says he has never had this problem with any of his clients. Usually, the children are responsible types and parents usually spend down the money on other types of benefits for irresponsible children before they turn 18.</p>
<p>ricegal-you're saying the money is being transferred because kid does not have checking account and parent does so parent can write a check? That's not a problem. A lot of kids actually don't realize that they have rights to UTMA/UGMA accounts; I believe UGMA is 18 but UTMA is 21.</p>
<p>I'm also saying the money is being transferred because it's most likely the parents will remember to pay the tuition bills, especially if kids are gone for the summer like mine most likely will be. I didn't realize UTMA is 21. We must have UGMA accounts.</p>