My son, junior in high school, has a UTMA account. After reading discussions on CC, we are thinking to convert to UTMA/529 or withdraw and spend. Which way is better?
Will UTMA/529 be considered as parent’s asset in FAFSA and CSS?
To withdraw, I called the financial services company, they said they can issue me a check. Would the money be part of my year 2015 income then? I later on will spend on my son this year, or reimburse me for my son’s tutoring expense in year 2014 .
Many thanks!
For FAFSA, yes. For Profile, it depends on how each individual school wants to treat the asset. You can contact the FA office of each Profile school that your son is interested in and ask how they treat a student-owned 529 account.
If you liquidate the UTMA account to invest the money in a 529, only the capital gains that are realized (if any) in that process will be counted as income for that year.
only the capital gains from current year, right? not accumulated from the beginning year?
No; the entire gain from the date of purchase will be considered income for the year in which you sell the asset.
Edited to add: if you’re talking about capital gains on your son’s UTMA assets, those gains are his income, and not yours.
So when converting my son’s current UTMA account to UTMA 529 account, the entire capital gains will be reported on my son’s year 2015 tax return form. (though he will file year 2014 tax return for year 2014 capital gains and dividends on his UTMA. Double taxing?).
In the case if we decide to withdraw and spend, the entire capital gains and dividends are also his income. Right?
Not sure what’s so hard to understand - investments in UTMA account are not taxed in some strange way. If he had reinvested dividends and capital gain distributions in 2014 and prior years, those increased his tax basis. When he sells in 2015, gain is proceeds less tax basis. Have you tracked the tax basis over the years?
He will also likely need Form 8615 in his tax return.
For the first time I found the" cost basis" and “change since purchase” in his account statement.
Thank you Madison85 for the explanation.
Will the gains on his tax return impact the EFC? count as 20%? He will file FAFSA in 2016 Jan.
Yes it will, after the student income protection allowance for all his income which is $6310 for 2015-16.
How much are we talking here? What is the answer you get when you take the current Fair Market Value and subtract the Cost Basis?
I got over $2000, under his income protection allowance. Won’t impact the EFC. Thanks Madison85, annoyingdad and MiddKid86.
Convert to 529 or spend, is still not decided. However, one thing for sure is I have to close his UTMA account in 2015 and he will need to report the gain on his 2015 tax return.