<p>I'm a single mom, live in California, have 2 teenage sons (sophomore and freshman in high school), and have contributed money into their UTMA accounts over the years with an eye to paying for college. I am beginning to get more educated about college funding and financial aid (better late than never!) I've learned a lot from reading the forums here. My specific situation is this:</p>
<p>son #1 (sophomore) has $90K in a UTMA account and $4K in a 529</p>
<p>son #2 (freshman) has $56K in a UTMA account and $4K in a 529</p>
<p>My income is likely to be > $100K this year and next (gross, not net), so from what I've read my boys have little chance of any non-merit aid at all.</p>
<p>In general I understand that it's better to have college money in a 529 rather than a UTMA (529 is considered parent's asset; UTMA is considered the child's asset in financial aid calculations). I would like to transfer a portion of the UTMA money into the 2 existing 529 accounts, but was told that I must take a distribution from the UTMA and then write a check in the same amount to deposit to the 529. I was also told that I'd be limited to $12,000/year because this is a gift. In addition, it seems that creating a new UTMA/529 wraparound account will not help because the UTMA would still be owned by the child, not the parent.</p>
<p>My question: if I withdraw $12,000/year per child from their UTMAs and deposit them into the 529 accounts, does this limit my ability to fund these 529s accounts from my own money? Should I even go this route given the low probability of any need-based financial aid? What about the $60K limit on gifts that I read about elsewhere on this forum - how does that work?</p>
<p>I don't think there is any limit. I did that, but the UTMA was not that big. However, remember that you (child) would have to pay capital gain tax on the profit from UTMA account.</p>
<p>simba,
I'm aware of the capital gains issue which will need to be faced sooner or later as the stock in the UTMA is sold to pay for college. </p>
<p>calmom,
Thanks for pointing me to the sfgate article. It doesn't say that 529s held in the child's name get favorable treatement, just that 529s don't count as the child's assets regardless of whose name they're held in. I did learn something new though which is somewhat good news: the assessed rate will be reduced from 35% to 20% for student assets:</p>
<hr>
<p>-- Also starting July 1, neither type of 529 plan will be counted as a dependent student's asset in the federal formula, even if the account is in the student's name. The same goes for Coverdell Education Savings Accounts.</p>
<p>Under the old law, these accounts could be counted as a student asset -- and assessed at the higher 35 percent rate -- if they were in the student's name, according to Joseph Hurley, who runs savingforcollege.com.</p>
<p>-- Other assets that are in a student's name, including those in an UTMA or UGMA account, will continue to be assessed at a higher rate than parental assets. However, starting July 1, 2007, these student assets will be assessed at a 20 percent instead of a 35 percent rate.</p>
<p>
[quote]
just that 529s don't count as the child's assets regardless of whose name they're held in.
[/quote]
Yes, but I don't think that there would be any limitation on the amount of money from a UTMA that you could move into a 529 in the child's name, because you aren't "gifting" the money but rather merely transferring it from one account owned by the child to another.</p>
<p>If its in a UTMA it has already been gifted, but you cannot fund a 529 with anything but cash. I hear the best is to wrap a UTMA around the 529. Perhaps you could do this without ever moving the funds at all, although to change the account type you may have to cash out the stock.</p>
<p>Either way, the above is an extremely effective means of making this money FAFSA Finaid friendly. If your kids are applying using institutional method....hiding it is much more difficult</p>
<p>Ok, so you've raised some great points. I can create new UMTA custodial 529 accounts owned by my sons, liquidate funds from their existing UMTAs and transfer the cash from old UMTA to new UMTA/529, with the funds in the new account being treated as other 529s and not counting as their assets under FAFSA. I believe the only catch is that I can no longer use funds from one boy's 529 account to pay college expenses for the other, so I just need to be sure I don't overfund either account. With college costs running > $25K/year even for UCs, in theory this shouldn't be a problem.</p>
<p>With regular 529 accounts you can use the funds from one to pay education expenses for the other. My older child had dropped out of college and we were going to use the remains in his 529 to pay towards my Ds schooling (he has now returned to college so :) so we wont be doing that). But i don't know if this is still the case with UTMA 529s. Worth looking into though.</p>
<p>If the student is the owner of the 529, you cannot use the funds of one to pay for the education of the other. (That's similar to the UTMA account, the major difference being that the student does not have unrestricted rights to the money in a 529 upon reaching statutory majority. They still have to follow the 529 rules.) If the parents are the owners of the 529, you can change the beneficiary.</p>