<p>I'm sorry, finaid.org says I'm wrong...UTMA is usually 21 and UGMA usually 18 but it depends on the state.</p>
<p>If the Coverdell is in name of "Mom FBO Kid" then it is a parent asset on FAFSA. If in kid's name, asset of kid.</p>
<p>So can UTMA be transferred into a Coverdell?</p>
<p>Wow, momfromme, good question. You can't put the kid's assets in something that is the parent's asset. So I believe you cannot take $ out of your kid's UTMA account and put it into a Coverdell that is Mom FBO Kid. But you can put it in a Coverdell owned by the kid. The kid wouldn't have to pay federal income tax on the income, so that is good, but it would be the kid's asset for FA purposes. You can also put UTMA account into a 529 owned by the child; depending on the 529 state you choose that could have advantages over the Coverdell. For instance, the New York 529 is not subject to state income tax for NY residents.</p>
<p>Unless I'm misreading the following, it seems like money can go from a UGMA/UTMA custodial to a Coverdell. Please correct me if I'm wrong:</p>
<p>FinAid</a> | Financial Aid Applications | Maximizing Your Aid Eligibility
"Section 8019(d) of the Deficit Reduction Act of 2005 (Public Law 109-171) modified the financial aid treatment of section 529 college savings plans, prepaid tuition plans, and Coverdell Education Savings Accounts for dependent students. Effective July 1, 2006, the custodial versions of these savings vehicles are not considered an asset of a dependent student. The US Department of Education is interpreting the law to indicate that such funds are not reported on the FAFSA. . . This provides an additional way for a parent who saved in the child's name to undo the damage. Before filing the FAFSA, the parent should convert the asset (by liquidating it, as contributions must be in cash) into a 529 college savings plan, prepaid tuition plan, or Coverdell ESA."</p>
<p>momfromme - good question, again. I think that's the part of the law that is a mistake that's been corrected, because it made all student owned 529 and Coverdell accounts invisible for financial aid purposes, which makes no sense. Maybe someone else can help out here?</p>
<p>I looked up the student owned 529/coverdell issue up in my Princeton Review book (Paying for College without Going Broke 2008 edition 32-33). Recommends not putting anything in such student owned account until the mistake in the 2005 financial aid legislation is resolved. I wouldn't do it without consulting a live financial expert.</p>
<p>
[quote]
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.
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</p>
<p>I have not read the whole thread but just like to clarify that this is possible. I did this last year with both of my kids. I was the one that open the trust for them and I was able to close it. There was a lot of paperwork involved though and both of my kids are under 18. The money went to my name but the account's beneficiaries are my kids.</p>
<p>Assets held in a dependent students name in a qualified account do not have to be reported on the 2007-08 FAFSA. This is due to a drafting error in the 2005 law. The mistake in the law was corrected effective in 2009. </p>
<p>The old law:</p>
<p>"Custodial 529 college savings plans owned by dependent students, where the student is both the account owner and beneficiary, are not reported as an asset due to a legislative drafting error in the Higher Education Reconciliation Act of 2005. When owned by an independent student or a parent, the account is still reported as an asset."</p>
<p>** The new law: **</p>
<p>(September 8, 2007) - Both the House and Senate yesterday voted to pass the College Cost Reduction and Access Act (H.R. 2669). The White House has signaled the intent of the President to sign the bill into law.</p>
<p>The major provisions of the bill would increase the maximum Pell Grant from $4,310 today to $5,400 by 2012, cut the interest rate on subsidized Stafford Loans in half from 6.8% to 3.4% over five years, and reduce government payments to banks and agencies making student loans.</p>
<p>Under the bill, dependent students with self-owned 529 accounts and Coverdell ESAs will no longer be able to exclude those assets in the determination of financial need, effective with the 2009/2010 school year. Instead they will be treated as parent assets, the same as parent-owned 529s and ESAs.</p>
<p>The bill also clarifies that tax-free distributions from a 529 plan, from a non-529 state prepaid tuition plan (i.e. Massachusetts U.Plan), or from a Coverdell ESA are not reportable as income or support on the federal financial aid application.</p>
<p>New law: "corrected effective in 2009"</p>
<p>Does that mean that money can be transferred now, included in the upcoming FAFSA as a parental asset, and spent during the 2008-2009 school year? That's what this sounds like, but again, I just want to make sure it's right.</p>
<p>What if funds are transferred to a Coverdell in 2007 or 2008 and spent an even later school year?</p>
<p>99cents - you say you moved assets around in a trust, this is different from a UTMA/UGMA account. Was the trust under your SSN for the benefit of your children, or under your children's SSN with you as custodian?</p>
<p>What we did is spend the money in the UTMA account for some of d's expenses that otherwise would have come out of parents' account. Some of those expenses: summer programs, dance classes & costumes, driver's ed, etc. All of these expenses are appropriate use of UTMA funds. That "spent down" her funds so there was less available on FAFSA, and kept parental funds in tact. We then transferred about the same amount from parental "regular" accounts into the parentally-owned 529 account, so the funds were still available for her college and had some tax advantages but were "taxed" at the parent's rate of 5% available.</p>
<p>Same amounts, different pockets.</p>
<p>momfromme, here's my understanding:</p>
<p>Money that belongs to parents can be moved to a parent-owned 529 account w/child as beneficiary OR a student-owned 529 account w/child as beneficiary.</p>
<p>Money that belongs to children can be moved (with no penalty) from a UTMA/UGMA to a student-owned 529. This transfer can happen any time.</p>
<p>I'm sorry but I'm not as familiar with Coverdell accounts.</p>
<p>Here's my situation: I have saved a lot of money in my 2 sons' UTMA accounts. I'm going to take the capital gains tax hit this year while my older son is a junior in HS. The capital gains are in my son's UTMA account, but they're reported on my taxes and will increase my AGI. Once the account has been converted to 100% cash, I'm going to move some of that cash to his student-owned 529 account, and the rest I'm going to move back into stocks and mutual funds within the UTMA. The reason for this is that I believe I'll get a better return next year in the UTMA vs the 529. Once I have a better idea of college costs next year when he's a senior, I'll probably move most of the remaining UTMA money into the 529 just prior to filling out the FAFSA in 2009 (and will probably incur another capital gains tax hit, but not as much as this year). I believe it's also legitimate to use UTMA funds to pay the incremental tax burden of the capital gains tax.</p>
<p>Hope that helps.</p>
<p>OK, I have more information about Coverdell accounts.</p>
<p>You can only put up to $2,000 a year into all Coverdells per child and cannot make new contributions once the child turns 18. So if you want to move money to a Coverdell, these are the parameters for rolling money into them.</p>
<p>
[quote]
you say you moved assets around in a trust, this is different from a UTMA/UGMA account. Was the trust under your SSN for the benefit of your children, or under your children's SSN with you as custodian?
[/quote]
</p>
<p>It was UTMA/UGMA type of account. I think the trust was set up by me as the custodian. But I set it up when the kids were born so the details are quite fuzzy as far as whose SSN.</p>
<p>Banks will let the UTMA custodian take out all the funds if the custodian wants to, and put it wherever. IRS though does not want parents sheltering funds under kids name, where interest under a certain amount doesn't count, then transferring it to their name. Also, your kid can sue you if he/she wants to =) So not a good idea to transfer from kid to parent.</p>
<p>I think the trust pays tax and withdraw from the fund. As far as what rate, idk.</p>
<p>From what I understand the IRS treats money from minor under 14 as the parent's money anyway. Sue me? I don't think so. It was my money in the first place.</p>
<p>The IRS treats investment income over a certain amount in an under-18 account at the parents tax rate. It's actually going up to age 24 if the kid is a dependent. So investment income up to (I think $850, not sure) in kids name is tax free. If parents sheltered assets in kid's name to get that tax free $850 every year from birth-17 THEN put it in parents name to be eligible for more financial aid, the IRS loses a lot of money.</p>
<p>Everything was legit and it was set up by a reputable financial firm. When I put the money in account, the IRS did not have that law and the IRS passed that law many years later.</p>
<p>"Sue me? I don't think so. It was my money in the first place."</p>
<p>"Was" is the key phrase in that sentence. When you fund an UTMA or UGMA you are giving that money to the child. It is not revocable. However, like was said before, you can transfer it to a student owned 529. </p>
<p>As far as gifting assets to a child to be sold, and tax implications, that is the "kiddie tax," you can find it on google. Keep in mind the kiddie tax laws are soon changing.</p>