college

As adults, children own their 529 plans

Joseph Hurleyq_v2.gifDear College Money Guru,
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

a_v2.gifDear 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.

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Read more College Money Guru columns and more stories about college financing. To ask a question of the College Money Guru, go to the "Ask the Experts" page, and select "College Financing" as the topic.

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