<p>I have a few questions. (I have a lot more, but I'll start with these...)</p>
<p>If your child has UGMA, UGTA and CESA funds, which type should be used first, to help with financial aid assessment? (I understand that UGMA/TA can be used for all sorts of things for the child and CESA are for tuition.)</p>
<p>I saw that you can't take the American Opportunity Credit if you use CESA funds for the same qualified expenses. Can you take this credit if you use UTMA/UGMA funds? </p>
<p>If you take out a lot of UTMA/UGMA funds in one year, to pay for room and board, is it conceivable that the child would not be a dependent that year, as s/he would be paying more than 1/2 of expenses? </p>
<p>Can UTMA?UGMA taken out one year be used the next year? the previous year?</p>
<p>Thank you!</p>
<p>Yes you can, but the way I understand it, the combined amount (UTMA withdrawal + American Opportunity Credit) cannot exceed the total educational expense for that year. If it does, then I think you should probably declare the gain portion of the UTMA amount over the expense and pay 10% penalty on that. The important point is only the gain portion of UTMA is effected by this. Not sure exactly how would you calculate this, but probably some prorating is in order for the gain portion for the amount over the expense.</p>
<p>I am not sure about the dependent issue you stated, but UTMA withdrawal should not be claim for educational expense from a different year.</p>
<p>Here is my question, can you only claim American Opportuniy Credit for only 4 years, or is it 5 years since the student 4 undergraduate years span 5 tax years?</p>
<p>Unless the UTMA funds are 529 accounts, using them is irrelevant to the AOC. They only matter as far as the AOC is concerned if they 529 accounts. If that is the case, keep in mind that 529 account money can be used tax/penalty free for costs that the AOC does not cover such as room and board. If 529 account funds are used for costs that you want to claim the AOC for, you should pay the tax on the 529 money but should not have to pay the penalty. (IRS 970 explains it all in detail)</p>
<p>I have no idea what CESA is so can’t comment there.</p>
<p>Sorry, I was confused. UTMA is just a regular money and can be used for anything once the beneficiary is over 18/21, unless of course it was transferred into a 529 account. Otherwise, if the money is withdrawn when the beneficiary is still a minor, then there maybe tax and penalty if the money is not used for qualified expense such as education.</p>
<p>Guessing that CESA is a Coverdell education savings account. If so, it’s pretty much treated like a 529 and room and board is qualified for a Coverdell withdrawal. If necessary to have enough expenses for the AOC, you can have the student declare the earnings from the Coverdell as taxable so any tuition/fees expenses paid with the Coverdell funds can be used for the AOC. Only the earnings portion is taxable and the 10% penalty doesn’t apply in this scenario. You should play with multiple scenarios to see what works out best as a family between the two returns. It may depend on the amount of other income the student has.</p>
<p>Here’s a link to pub 970 mentioned above:</p>
<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>Thank you everyone. I have seen the 970 publication but it is very complicated. I am having a really hard time understanding it all.</p>
<p>Anyone know the answer to:</p>
<p>If your child has UGMA, UGTA and CESA funds, which type should be used first, to help with financial aid assessment? </p>
<p>If you take out a lot of UTMA/UGMA funds in one year, to pay for room and board, is it conceivable that the child would not be a dependent that year, as s/he would be paying more than 1/2 of expenses?</p>
<p>UTMA funds are assessed at the rate of 20% for FAFSA, while Coverdell and all 529 accounts are assessed at the rate of 5.6%. So $10,000 in a UTMA would add $2000 to your EFC, while the same amount in a Coverdell would add $560. It’s generally preferred to withdraw from UTMAs first when funding college.</p>
<p>You also have the option of transferring part or all of the UTMA funds to a UTMA/529.</p>
<p>Can you ask your accountant about the qualifying child rules? If the student has no income, only capital gains and savings, it’s hard to see how the student could be considered as supporting himself.</p>
<p>
UTMA funds can be withdrawn and used at any time, there’s no restriction as to calendar year. Only 529s (and maybe Coverdells, I’m not as familiar with them) must use the funds withdrawn during the same calendar year.</p>
<p>Thanks vballmom. That helps a lot. </p>
<p>My child had earned income but only from a summer job so it looks clear to me that he is a dependent. Sounds like UTMA/UGMAs are pretty flexible as long as the $ is used for the child. We closed the last of his accounts in 2012, so next year taxes/FAFSA should be easier.</p>