There is no limit on gifts to
a UTMA/UGMA account, although gift tax may apply. Everyone has
an annual per donee gift tax exclusion. The IRS adjusts the
gift exclusion amount annually for inflation.
Contribution maximums can exceed
$300,000 per beneficiary depending on the particular plan. Once
the cap is reached, the account may continue to grow, but further
contributions are not allowed. Contributions are gifts subject
to the annual exclusion, which the IRS adjusts annually for
inflation. A five-year spreading election is available.
Many plans permit the prepayment
of up to five years of tuition and mandatory fees, with some
plans accepting even higher contributions.
Contributions of up to $2,000
per year from all sources are allowed.
Anyone (including the child) can put money into a child's Coverdell
account, but contribution amounts are phased out for higher-income
contributors.
What is the impact on financial
aid?
Designating assets to a child
will reduce eligibility for financial aid. Money in a custodial
account is considered a student asset, and financial aid officers
expect students to contribute 35 percent of their money toward
college expenses each year.
If the 529 account owner is the
parent, the money is considered a parent's asset, and financial
aid officers expect parents to contribute 5.6 percent of the
money toward college expenses each year. Grandparent-owned 529s
are not counted at all.
A prepaid tuition plan is considered
a resource of the student and reduces aid on a dollar-per-dollar
basis.
When the parent is responsible
for the account, the money is considered the parent's asset,
and financial aid officers expect parent's to contribute 5.6
percent of the money toward college expenses each year.
