<p>We started a UTMA for daughter back in the days before the 529s. As soon as the 529s were created we stopped contributing to the UTMA as it was clear that the 529 would be a more advantageous way to save in regards to any potential Fin Aid we might be able to get. Now, she is applying to colleges and I'm starting to fill out Profile and will do the FAFSA in January. My question is this: She has just turned 18 so the UTMA legally turns over to her. If she were to cash it in and put it into her 529 (I'm assuming that she wouldn't have to roll over into a UTMA/529 since the money is now legally her so she sould be able to do with it what she will) would it still be considered her asset by colleges for Fin Aid purposes? The reason I ask is that Profile, at least, asks whether is will file a tax return and if she cashes in the UTMA she probably would. Do the colleges ask to see returns of students? Bottom line question: Does it make sense to make this move even at this late date?</p>
<p>In our experience the schools our daughters attended, both public and private required 1040s & W2s to be submitted for confirmation of finaid.</p>
<p>FAFSA will require the student’s income to be reported even if the income is not high enough to require a tax return. So if their is income from cashing in the UTMA then it will have to be reported. A dependent student has some income protection (I think it is about $4500 for the 2010-2011 school year). Anything over that 50% goes to the EFC.</p>
<p>We have had to provide student tax returns most years. 30% of FAFSAs are required to be verified and part of the verification process is submitting tax returns.</p>
<p>A dependent student has no asset protection and 20% of assets go to the FAFSA EFC. So 20% of the UTMA would go to the EFC. Parents have asset protection based on the age of the older parent. Over that 5.6% of the assets go to the EFC. A 529 is considered a parent asset even if it is in the student’s name for FAFSA. I don’t know how CSS treats student owned 529s versus parent owned 529s…</p>
<p>So the answer is, it depends. You would have to weigh if the impact to the EFC of the assets as a UTMA vs 529 account is more or less advantageous than cashing in the UTMA and any impact that income would have.</p>
<p>Is there any way of converting the 529 account to a 529 without cashing it in? That would take the income element out of the equation.</p>
<p>There was talk of the EFC formulas being completely revamped for 2011-2012. This may completely change how assets are handled, if it happens.</p>
<p>Are you sure the control of the UTMA goes to her at 18? It doesn’t in PA. My children pay taxes on any earnings, but I tried to switch it from a custodial account to my D’s name only, and was told not until she’s 21.</p>
<p>I think they have always been considered student assets for financial aid, but at least in our state, the parent still has custodial control of the funds until 21.</p>
<p>It looks like it depends on the state
[FinAid</a> | Saving for College | UGMA & UTMA Custodial Accounts](<a href=“Your Guide for College Financial Aid - Finaid”>UGMA & UTMA Custodial Accounts - Finaid)</p>
<p>There’s no way to convert a UTMA to a 529 without liquidating the stock/mutual funds in the UTMA. The reason is that the 529 must be opened with cash. Even if you’re rolling over from a UTMA to a UTMA/529 (a child-owned 529) the UTMA must be liquidated. </p>
<p>You should take a look at the capital gains that would be realized when the UTMA is converted to cash. It’s possible that your D would have to pay tax if the gains were significant. In that case you might want to spread the gains out over several years - cash in some of the stock/mutual funds now so that the gains are under the taxable limit, but leave the rest of the funds in place to be cashed in/taxed in another year.</p>
<p>For FAFSA-only schools, it’s advantageous to convert UTMAs to 529s, but Profile schools aren’t as transparent in how they count student assets so it’s difficult to know for sure what the effect will be on your calculated EFC.</p>
<p>Are moneys paid on the students behalf (testing fees, etc) from UGTM account reported as student income on FAFSA? Where is it reported on Profile? In that catch all bills paid on your behalf? The amount isn’t very large - 1k or less - and there is around $600 left in account. Grandmother started account years ago, then switched to Coverdell, but left little bit in UGTM.</p>