Ask Terry Questions UGMA/UTMA for college money

UGMA/UTMA for college money

By Terry Savage on August 17, 2017 | College Savings / Student Loans

As a grandfather, do I need to transfer my UTMA NY custodial funds to my daughter-in-law, because my grand-daughter will be only 17 when she enters college or can I (as custodian) transfer the funds directly to the college?

Terry Says

Well, there's a lot left unsaid here.  First, if your grandchild is expecting financial aid to pay for part of her schooling, money in an UTMA custodial account weighs many times more against the family in the financial aid formula.  If you used her Social Security number on the account, this will be apparent -- even if the parents don't add it to their assets.  So you would want to spend that money on her behalf (computer, car, etc) before her junior year when the family first starts figuring out the FAFSA (free application for Federal student aid). Second, grandparents can make unlimited gifts of tuition IF the money is paid directly to the college or university.  This money does not count against the annual $14,000 gift tax exclusion, that allows you to give up to that amount to anyone, every year. Bottom line: an UTMA account has some severe drawbacks, in addition to the fact that the money in it becomes hers when she reaches the age of majority in her state of residence!  That's why I always recommend 529 college savings accounts, which can be opened by a grandparent.  The money in them grows tax-free for college expenses, and it does not weigh nearly so heavily in the financial aid formulas.



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