Ask Terry Questions Saving for college

Saving for college

By Terry Savage on February 08, 2023 | College Savings / Student Loans

I have opened up mutual fund accounts for my five grandchildren. Oldest is 15 and youngest is 10. They were opened at their birth. Just individual in their name so I guess they own them and I would have to transfer the money to them at 18? 21? Should I take out the money and put it in 529 college plans (Illinois) or just leave it. The oldest has $12,000 now and the youngest has $5,000. Thank you for any help you can give me.

Terry Says

OK, that was a mistake, but 529 plans weren’t as well known in those days. Not only does it become THEIR money at age 18, but it severely impacts any financial aid they might apply for.
You can transfer the money from the UTMA or other custodial accounts to a 529 college savings plan. Since the money comes from an UTMA account, you must set up a custodial 529 college savings plan account, as opposed to a regular 529 plan account. The custodial 529 plan will be titled the same as the UTMA account.

BUT– according to Mark Kantrowitz, student loan expert: “All of the untaxed capital gains in the existing UGMA or UTMA account will be reported as unearned income if converted to a 529 plan. Contributions to a 529 plan must be made in cash, which requires liquidating the UGMA or UTMA account. ”

Read his recent article at for more on this issue:

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