COLLEGE SAVINGS 101

As adults, children own their 529 plans

03/27/2010

QUESTION:
Dear Joe,

I had a Uniform Transfer to Minors Act, or UTMA, account for my daughter. After she turned 18, I closed that account and opened up a money market account at a bank and set it up under both of our names so I could still administer the funds for her. It is not a custodial account, but it is listed in both names. Was that a mistake? Should it have just been in her name legally? I need to be able to manage it for her. Also, can I take those funds and put them in a custodial 529 account now so that she gets the most favorable financial aid treatment on the FAFSA?

-- Christy

ANSWER:
Dear Christy,

Assuming you live in a state where custodianship terminates at age 18, the money now legally belongs to your daughter. I suspect the bank did the right thing when setting up the new money market account even with it being opened in both your names.

One way to check is to make sure that tax statements from the bank are still being issued to your daughter under her Social Security number. If you have questions after doing this check, you should feel free to contact the bank or your attorney for further explanation.

You cannot set up a custodial 529 plan for your daughter if she is no longer considered a minor under your state's laws. However, she can establish her own account by naming herself as account owner and beneficiary. Doing this can confer an immediate financial aid benefit since the account can now be reported as a parental asset on the Free Application for Federal Student Aid, or FAFSA. In computing the "expected family contribution" of a dependent student, only 5.64 percent of the parents' reportable assets are included as opposed to 20 percent of the student's reportable assets.

This may defy logic, but an asset owned by the student is treated as parent-owned on the FAFSA. This treatment was installed by Congress to provide a savings incentive for families and is applicable only to 529 plans and Coverdell education savings accounts.

Many 529 plans will allow the account owner to request that duplicate account statements be provided to a parent, adviser or other third party. You could ask that your daughter set up the account so that you receive duplicate statements and can continue to monitor it.

Other recent questions

»Top 529 Plan Withdrawal Tips. (Video) (03/30/2017)
»What are the 3 biggest 529 plan myths? (Video) (03/17/2017)
»Does a 529 plan affect financial aid? (Video) (03/16/2017)
»How much does college cost? (Video) (03/15/2017)
»What Are The Top 7 Benefits Of 529 Plans? (Video) (03/14/2017)
»529s and Financial Aid (Video) (11/19/2014)
»What are the best ways to maximize the savings in my 529 plan? (Video) (10/14/2014)
»What are the steps involved in setting up a 529 account? (Video) (09/15/2014)
»What is the first step in getting started with a 529 plan? (Video) (09/05/2014)
»Coverdell ESA vs. 529 Plan: Which to choose? (Video) (07/15/2013)
»What is the best 529 plan for me? (Video) (07/10/2013)
»What happens to my 529 if my child gets a scholarship? (Video) (07/02/2013)
»Can grandparents open a 529? (Video) (06/20/2013)
»Do I have to use my own state's 529 plan? (Video) (06/12/2013)
»529 Plans: Tax Benefits of a 529 Plan (Video) (06/07/2013)
»What are the Pros & Cons of 529 plans? (Video) (05/30/2013)
»What is a 529 College Savings Plan? (Video) (05/21/2013)
»Expected addition to the the family (04/16/2013)
»Naming a successor to your 529 account (Video) (05/11/2012)
»Finding the Right Coverdell ESA (Video) (09/16/2011)
Path To College Savings

Get personalized information to help you start saving for college and meet your goals.
Provide a few details to get started:

1. I am a ...
Please select an option.
2. My child is ...
Years Old
Please enter the age of your child.
3. I have a 529 plan for this child
Please select an option.
 

Reset email successfully sent.
Please check your inbox.

Close
page loadtime mark

Advertisement


close