Should I Transfer UTMA Funds into a 529 Plan?

My wife and I began saving for our sons college education the month after he was born. At the time one of our few options was the UTMA, which we began with a good no-load mutual fund. Later the Coverdell and 529 Plans came into being, which we also opened accounts in.

Since its had the longest time to grow, the UTMA holds the largest amount of assets, about 75% of our total college savings. The 529 holds the next largest amount followed by the Coverdell account.

My question is whether I should keep the assets as they are which are projected out to be enough to fund a public university education over the next 8 years. Or should I convert the UTMA into our 529 and pay the taxes due now. With the first choice there is a good chance to have sufficient funds to pay for a 4 year program provided the market doesn't tank on me. The second choice would place the funds outside my son's name making him more eligible for financial aid should he require it. Another concern is that the UTMA mutual fund has a consistent long term return while the 529 historical return is limited.

I'm not sure which is the better way to approach this and I'm hoping for some insight from those of you who may have thought this through. Thanks. :confused:

The second choice would place the funds outside my son's name making him more eligible for financial aid should he require it.

This is actually incorrect. Moving UTMA funds into a 529 does not remove the UTMA wrapper. The 529 plan will ask you if the funds come from an UTMA/UGMA and will set up a UTMA/UGMA 529 account if the answer is "yes".

UTMA/UGMA 529s are considered to be in the child's name for the purpose of financial aid, according to the Dept. of Ed.

Also, you cannot change the beneficiary of a UTMA/UGMA 529.

Knowing this may make your decision a little easier.

TJ

If your child is able show an income, you could move $ from the UGMA/UTMA into a Roth IRA up to the limit allowed. This would protect the assets from the lump sum 35% expected contribution. Also, the cost basis could be accessed if needed.