Why You May Not Want to Use an UGMA for Education Planning

Why You May Not Want to Use an UGMA for Education Planning

We often come across clients who have UGMA or UTMA accounts set up for minor children. These are custodial trust accounts that are set up with a minor as beneficiary and parent or guardian as custodian under the Uniform Gifts/Transfers to Minors Act. These are often set up out of good will as a desire to make a gift to a child. When it comes to education planning, however, UGMA/UTMA accounts are often not the best vehicle for savings. This is because deposits to these accounts are considered irrevocable gifts to the minor, and the asset is considered an asset of the child’s for financial aid purposes. Such assets have a high impact on financial aid eligibility, whereas 529 plans, for example, do not. Transfers can be made from UGMA/UTMA accounts to 529s, but one has to title the account correctly when making the transfer. If you’d like assistance with this and other education planning strategies, contact us today for a complimentary...
Quick Tip: Why You Shouldn’t Use a Roth IRA for Education Planning

Quick Tip: Why You Shouldn’t Use a Roth IRA for Education Planning

When planning to fund a child’s education, there are many vehicles in which one can save for college expenses. These include, but are not limited to, Coverdell Educational Savings Accounts (ESAs), 529 plans, and UGMA/UTMAs. Sometimes one will even save in a Roth IRA. What many people don’t realize, however, is that the FAFSA financial aid form considers withdrawals from a Roth IRA to be untaxed income to the child. Consequently, such withdrawals can adversely affect a child’s ability to obtain financial aid. What is more, it’s generally best to keep retirement savings accounts earmarked for retirement and not to use them for other...
529 Plan Beneficiary Changes

529 Plan Beneficiary Changes

If you have a section 529 plan for college education, you might be worried about what happens to your money if your child doesn’t go to college. One option is to change the beneficiary on the account. According to IRS Publication 970 (pp. 62-3), a beneficiary can be changed to another member of the beneficiary’s family, and the IRS broadly defines “family” as the beneficiary’s spouse, as well as the following individuals:   Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them. Brother, sister, stepbrother, or stepsister. Father or mother or ancestor of either. Stepfather or stepmother. Son or daughter of a brother or sister. Brother or sister of father or mother. Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. The spouse of any individual listed above. First...