Difference Between UTMA and 529

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.

1. Is Utma a good idea?
2. Can I convert my UTMA to a 529 plan?
3. Do UTMA accounts have to be used for education?
4. What are the benefits of a UTMA account?
5. What happens to Utma when child turns 21?
6. Who pays taxes on a UTMA account?
7. What happens to 529 if child does not go to college?
8. Does a UTMA affect financial aid?
9. Where do I put Utma on fafsa?

Is Utma a good idea?

UGMA / UTMA accounts can be good for some things, bad for others. ... The main "upgrade" is greater flexibility - UGMAs only hold securities, UTMAs can hold securities and others assets, such as real estate.

Can I convert my UTMA to a 529 plan?

You can move money from a custodial account, such as a UGMA (Uniform Gifts to Minors Act) or a UTMA (Uniform Transfers to Minors Act), to a 529 plan. But you can't do the reverse — transfer or convert from a 529 to a custodial account — without adverse tax consequences.

Do UTMA accounts have to be used for education?

You can use the money in an UGMA or UTMA account for any purpose, not just to pay for college. 529 plan distributions are subject to a 10% tax penalty if you don't use the money to pay for qualified expenses.

What are the benefits of a UTMA account?

The main advantage of using an UTMA account is that the money contributed into the account is exempted from paying a gift tax, up to a maximum of $15,000 per year. Moreover, any income earned on the contributed funds is taxed at the tax rate of the minor who is being gifted the funds.

What happens to Utma when child turns 21?

Virtually all states have adopted some form of UTMA that allows you to make gifts to a minor to be held in the name of a custodian during the age of minority. On reaching the age of majority, usually 21 years, the minor is entitled to all assets held in the account.

Who pays taxes on a UTMA account?

Because money placed in an UGMA/UTMA account is owned by the child, earnings are generally taxed at the child's—usually lower—tax rate, rather than the parent's rate. For some families, this savings can be significant. Up to $1,050 in earnings tax-free. The next $1,050 is taxable at the child's tax rate.

What happens to 529 if child does not go to college?

The simple answer is: No, you won't lose your money. The funds in a 529 plan can be used in a number of other ways if your beneficiary decides not to pursue higher education.

Does a UTMA affect 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.

Where do I put Utma on fafsa?

An UGMA or UTMA account is a custodial account, where the account is owned by a minor. As noted in the FAFSA instructions, custodial accounts must be reported as investments on the FAFSA and are reported as assets of the account owner, not the custodian.