<p>Money in a UTMA must legally be used for the benefit of the minor. A car or computer purchase would be legitimate uses for this money. Paying down a mortgage would not as parents are assumed by the IRS to be providing the child a place to live.</p>
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<p>Yes, with a caveat. The child must remain the owner and the parents would be the custodian of a 529 funded via money in a UTMA. This kind of 529 is known as a custodial 529 or a UTMA/529. Most brokerages would be able to handle the transfer from a UTMA to a custodial 529. However the stock must be liquidated first as 529s can only be funded with cash. The OP should calculate the capital gains tax hit; the capital gains tax can be paid by the student from the proceeds of the stock sale.</p>
<p>The FAFSA formula considers 20% of student assets to be available for college ($10,000 of the $50K UTMA) and 5.6% of 529 assets to be available for college ($2800). Therefore the marginal contribution of the student’s UTMA to his EFC is $7200 in the first year.</p>
<p>If the entire $50k is intended for college, one approach would be to sell the stock, take the capital gains hit in 2012 (which will increase the student’s reported income as well), transfer everything to an age-based 529 (will be mostly cash) and withdraw $15K/year to fund college. </p>
<p>As a side note, this kind of planning is best done two years before the student goes to college because then the income isn’t reportable on the financial aid forms.</p>
<p>Before you do anything, run the numbers to calculate your EFC to see if the $7200 increase will make a difference.</p>