<p>I live in New Jersey and have an UTMA account for my high school senior, in addition to a 529 plan. Is the UTMA technically his asset? In which case, should I then transfer to my name for more favorable FAFSA consideration? Currently have about 34K in the UTMA and another 8K in 529. Household income over 150K/yr.</p>
<p>Your son owns the assets in the UTMA account; you are simply the trustee. Transferring the funds can be a bit tricky since you are not the legal owner, and you will be transferring them from his name to yours. The other issue is that if you liquidate the 529, and have any growth in it on which you must pay taxes, the colleges will know that he had this amount available to him but doesn't have it anymore. They'll question that, at least for his freshman year. (In other words, senior year is probably too late to do the transfer to make it worthwhile.)</p>
<p>You might want to try some of the financial aid calculators (<a href="http://www.finaid.org%5B/url%5D">www.finaid.org</a> has one) with both scenarios (34 in UTMA as opposed to 42 in 529) and see what the difference is. However, with an income of over $150K, it's unlikely to matter much - you probably won't qualify for much in the way of need-based aid.</p>
<p>Chedva is correct, the UTMA account is owned by your son. You're looking to have these funds treated more favorably for Financial Aid calculations, but you can't change ownership. I faced the same situation. What I did, after advice from this forum and checking with my broker, was to create UTMA/529 accounts in my 2 sons' names, and fund them by transferring cash from their UTMA accounts. The downside of this is that the UTMA/529 can ONLY be used for the son owning the account (unlike regular 529 accounts where funds can be used for either son). This might not be an issue for you. Also, you can only transfer cash, so any capital gains that the UTMA account has accrued will be taxed, but this just means paying cap gains taxes sooner rather than later.</p>
<p>If I do create an UTMA/529 account, how is this treated differently from regular UTMA? Don't see the advantage. Without the records in front of me, I think most of the account balance is in fact cap gains.</p>
<p>UTMA assets are counted as student assets and 20% of their value is included in the FAFSA calculation.</p>
<p>529 assets, regardless of whose name they're held in, aren't included as assets in FAFSA.</p>
<p>Holding assets as 529s rather than UTMAs is advantageous for FAFSA. I don't think it makes much of a difference for PROFILE calculations.</p>
<p>With a household income of over $150k per year, any change in your asset allocation is unlikely to make a significant difference in your EFC for financial aid purposese. Your EFC is likely to be very high regardless of your asset allocation. Neverthleless, my understanding of the UTMA accounts is that they belong to your son with you as the trustee. As the trustee, you cannot just transfer the funds into your name. However, you are not obligated to retain the assets in the account to only be spent on college expenses. You can withdraw the funds and spend the funds for the benefit of your son to cover expenses other than college expenses. Examples include: buying your son that new computer, musical instrument, trip to visit colleges, high school graduation trip, etc. To the extent you would normally pay for these expenses out of pocket, I believe you can withdraw funds from the UTMA account to pay for these items, and then take the money you would normally have spent out of pocket to fund the 529 account, so that total savings available in the accounts is the same, but the allocation between 529 and UTMA account is different. I don't think you can make a significant shift in the asset allocation based on these types of expenses, but I think it is possible.</p>
<p>Using the UTMA funds to feed into a 529 account is an interesting strategy and I'd like to hear more about it. I think you would just need to be able to clearly demonstrate that the funds are set aside for that particular child and the funds aren't used for another purpose.</p>
<p>Taking the money out of the UTMA account could create a taxable event for your son, which would need to be reported as income on his 2007 tax return. Since you say most of the value is capital gains, this is another thing to consider since his income will need to be reported on FAFSA, and generally, one time taxable events should be avoided since it creates the impression of a stream of income that isn't always there.</p>
<p>Ideally, to the extent you wanted to make changes such as this, it would have been better to do it when your son was a soph or junior in hs.</p>
<p>vballmom, my understanding is different from yours. My understanding is that 529 savings are counted as parental assets and are factored into the EFC although at a lower rate than the UTMA accounts which are student assets.</p>
<p>For FAFSA purposes, last year, there was a loophole - 529 accounts owned by parents were considered to be parental assets. 529 accounts owned by students were not reported at all.</p>
<p>I understand that Congress has closed this loophole. Student owned 529s (the UTMA 529) will now be reportable as a student asset.</p>
<p>Dadx4, good point about creating the taxable event in the years <em>before</em> the child applies for financial aid. I'm planning to sell some of my son's appreciated stocks this year in order to do just that. The proceeds will be moved into his UTMA/529 account, but the advice is good regardless. The proceeds can be reinvested in similar instruments within the UTMA as well.</p>
<p>RE 529 accounts:</p>
<p>Qualified distributions do not affect eligibility (i.e., qualified distributions do not count as income or a resource). Note that non-qualified distributions (i.e., distributions that are subject to federal income tax) do count as income to the distributee. Custodial 529 college savings plans owned by dependent students, where the student is both the account owner and beneficiary, are not reported as an asset due to a legislative drafting error in the Higher Education Reconciliation Act of 2005. When owned by an independent student or a parent, the account is still reported as an asset.</p>
<p>From <a href="http://www.finaid.org/savings/accountownership.phtml%5B/url%5D">http://www.finaid.org/savings/accountownership.phtml</a></p>
<p>Just now reading Chedva's response - can you find a URL with more information on the loophole closing?</p>
<p>Thanks!</p>
<p>Here's the thread:
<a href="http://talk.collegeconfidential.com/showthread.php?t=393600&highlight=529%5B/url%5D">http://talk.collegeconfidential.com/showthread.php?t=393600&highlight=529</a>
It was since signed into law.
<a href="http://talk.collegeconfidential.com/showthread.php?t=397695&highlight=Bush%5B/url%5D">http://talk.collegeconfidential.com/showthread.php?t=397695&highlight=Bush</a></p>
<p>Here's another site with info, although again it might be dated:</p>
<p>"Beginning July 1, 2006, UGMA/UTMA assets held within a 529 savings plan will no longer be included with other student-owned assets in the formula for determining a familys expected contribution towards college costs. What used to count against aid eligibility at the rate of 35 percent will now be assessed at no more than 5.64 percent of value. The picture brightens even more considerably for families using a state-sponsored prepaid tuition plan or the private-college Independent 529 Plan. Instead of causing a dollar-for-dollar reduction in federal aid eligibility, prepaid plans will now share the same treatment as 529 savings plans.</p>
<p>Before these changes, some parents would attempt to convert 35-percent assets into 5.64-percent assets by transferring their childrens UGMA/UTMA assets into 529-plan accounts under their own names, and disregarding the specially-designated custodial accounts made available in most 529 plans. This questionable practice will no longer enhance aid eligibility. In fact, investments held in a parent-owned 529 account may receive LESS favorable treatment than investments in a custodial 529 account. Presumably, all of your parent-owned 529 accounts will have to be reported on the financial aid application of each of your children attending college, while its possible that a custodial 529 account will only have to be picked up for the particular child named on that account."</p>
<p>Chedva,
Looks like we're posting at the same time ;-) </p>
<p>Thanks for the links. The relevant info is this:</p>
<p>Under the bill, dependent students with self-owned 529 accounts and Coverdell ESAs will no longer be able to exclude those assets in the determination of financial need, effective with the 2009/2010 school year. Instead they will be treated as parent assets, the same as parent-owned 529s and ESAs.</p>
<p>So for the original poster, looks like the UTMA/529 will help his son next year (2008-2009) but not after that.</p>
<p>This is from the FAFSA website:
Asset Changes</p>
<p>College Savings Plans - are qualified educational benefit plans such as "529" college savings plans, other prepaid tuition plans offered by a State, and Coverdell education savings accounts. The value of these plans is to be reported as an asset of either the student applicant or the parent, as follows:</p>
<pre><code>* If you are reporting parental information and your parents own a qualified educational benefit plan, or education savings accounts including "529" college savings plans and Coverdell savings accounts - report the current balance of the plan as a parent asset (Q88). The amount to be reported for a state prepaid tuition plan is the "refund value" of the plan.
* If you are reporting parental information and you own a qualified educational benefit plan do not report the value of those plans.
* If you are not reporting parental information and you own (or if married, your spouse owns) any of these qualified educational benefit plans report the current balance of the plan as a student/spouse asset (Q44). The amount to be reported for a state prepaid tuition plan is the "refund value" of the plan.
</code></pre>
<p><a href="http://www.fafsa.ed.gov/hera.htm%5B/url%5D">http://www.fafsa.ed.gov/hera.htm</a></p>