Custodial accounts can have a heavy impact on financial aid. Because the money in a custodial account is your child’s asset and not yours, federal financial aid formulas consider 20% of the money available to pay for college. Compare this to 529 plans, which are given more favorable treatment for financial aid.
Does UTMA count against financial aid?
Limits on financial aid. Student assets in an UGMA or UTMA account reduce eligibility for need-based financial aid by 20% or 25% of the asset value, much more than the maximum 5.64% reduction for a 529 plan account that is owned by a dependent student or the student’s parent.
What is the difference between a 529 plan and a UTMA?
An UTMA account provides a way to transfer a wide variety of assets to a minor beneficiary. The funds can be spent on anything that benefits the minor. A 529 plan is a savings account that is specifically intended to help pay for educational expenses.
How long can money stay in a 529 plan?
Money can stay in the account and could eventually be used for graduate school — even if that is 10 or 15 years later. In fact, the money can remain in the plan indefintely as long as there is a living beneficiary. Money in the account can also be used by other members of your family.
What should I do with my UGMA and UTMA account?
The custodian’s job is to keep it safe and invest it wisely so that the minor will benefit from it someday. UGMA and UTMA accounts are often used to pay for college, but can also be used for any expense the minor incurs—anything from basic costs of living to leisure activities like team sports.
Can a 529 account be considered a UTMA account?
UTMA assets are considered to be owned by the minor (student) and can reduce financial aid eligibility. This is in contrast to funds held within a 529 College Savings Plan. 529s are considered to be a parental asset and are treated more favorably when determining eligibility.
What happens to money left in UTMA account?
Use the money for other purposes, and you’ll owe a 10% penalty plus income taxes on account earnings. If there’s money left in the account when the beneficiary graduates from college, it can fund graduate school expenses, or parents can choose a second beneficiary. Ads by Money.
When to start a UTMA account for a minor?
As a result, custodians can establish UTMA accounts for a minor and specify that they wait until age 21 to gain control of the funds. Once the account is funded, it is common to invest the funds in stocks, bonds, mutual funds etc.
