<p>I have read quite a bit about how the UGMA/UTMA custodial accounts are not that great after all. So, I’m thinking about closing the custodial account (about 3K)and using the money for qualified expenses. My child is still 4 years away from college, and attends a private school with fin. aid., so I thought I could use the UGMA/UTMA money for tuition, a computer, camp, etc. Later, I might open up a 529.</p>
<p>Since the UGMA/UTMA account is not a checking account, I can’t use it to make payments directly. The bank guy that handles the custodial account says he can close it and send me a check and I can deposit it in my own account and use it as planned and keep the receipts in an envelope. Does this work? And if it does work, can I justify the expenses with receipts of expenses made for the child before the check arrived ( previous tuition, previous qualified expenses)?</p>
<p>Any light on this will be appreciated. Thanks!</p>
<p>Keeping the receipts in an envelope would work fine. You could make a little hand-written schedule showing beginning balance and deductions as the money is spent. A nice touch would be to write the schedule on the envelope.</p>
<p>If you are paranoid you could go to your bank and open up a new checking account in your name, hopefully free, and call it “Johhny’s UGMA Bridge Account.” Deposit and spend UGMA funds out of that account. The beginning 10 or so checks they give with a new account may be all you need. The bank can always make a few counter checks if you run out and need a few more.</p>
<p>There was a heated discussion a year or so ago about whether it is sketchy to reimburse yourself retroactively for prior qualified expenses. Try a search. My own opinion is that it is OK as long as it has not been years since the expenses, and besides, who is going to squawk about it anyway? So you only have your conscience to worry about. If the expenses are relatively recent, it seems fair to apply the kid’s funds when you find out you can.</p>
<p>we did similar to dt123 advice. We had UTMA trading account and UTMA check accounts. When we needed to spend money for tuition, we move money from the trading account to the checking account and then to the school. </p>
<p>I personally found the UTMA more flexible in practice, actual returns, tax issues than 529s. There are advantages in a UTMA that are not found in a 529 and for relatively small accounts a UTMA is a better way to go.</p>
<p>But for financial aid purposes isn’t a UTMA reported as a student asset? A 529 is reported as a parent asset therefore only up 5.6% goes to the EFC and then only if there are enough assets for it to be unprotected. So an effect of 0 to 168 on the EFC. But a student has no asset protection so 20% of the UGMA goes to the EFC - 600.</p>
<p>We have been withdrawing from the kids’ UGMAs for years, once we realized what a mistake they were as a college investment fund. We just track expenditures on a spreadsheet, in case we’re ever asked to account.</p>
<p>Just keep copies of all of the statements in a folder with a brief commentary showing where the money went. We had no problem in doing that with our kids in private schools. The tuition ate up the UGMA very, very quickly.</p>
<p>We have a utma for my older son. We would like to cancel that account. As I learned from the posts, its possible to do that and keeping track of the expenses is the best way to answer any questions in the future. Can we also use that fund for the expenses paid for him in the past 2 years? i.e., if we have evidence? </p>
<p>Since this topic comes up occasionally on this board, I’ve found some information that might be of further interest. Basically the writer is saying that anything withdrawn from a UTMA that’s done for the benefit of the child is legitimate, even costs that would normally fall under the “support obligation” category. The author also says that withdrawals can be done to (promptly) reimburse for past expenses, and to keep good records of such withdrawals.</p>
<p>A custodian may deliver or pay to the minor or expend for the minor’s benefit so much of the custodial property as the custodian considers advisable for the use and benefit of the minor, without court order and without regard to (i) the duty or ability of the custodian personally or of any other person to support the minor, or (ii) any other income or property of the minor which may be applicable or available for that purpose.</p>
<p>But in Sec. 19 (3) it was added and states that this payment is “in addition to, is not in substitution for, and does not affect an obligation of a person to support the minor” In other words the UTMA is not intended to be used for logical partental obligations. A parent still has an obligation to support his child and the UTMA should be used as an addition to the obligation.</p>
<p>OP should keep $$$ in UTMA and spend it down on kid expenses from there, not transfer the whole thing to the parent. Part of the income on the UTMA will not be taxed (I think something like $800) and part will be taxed at the child’s rate (I think the next $800?), which is less than the parents’ rate. Just keep records of what each withdrawal was spent on.</p>
<p>Also, you don’t want kid to have gift tax implications; a transfer of over $12,000 to parents could mean a gift tax return.</p>
<p>I too have been looking into taking some money ($2,500) from my childs account to use for her college expenses next year. From reading, it looks like it is not that consequential re:taxes and/or penalties. I have $2,500 in a mutual fund account via UGTMA. Just reading some posts made me feel better. EM</p>
<p>When considering whether to invest in a 529 plan versus a UGMA account, keep in mind that if you have more than one child, with a 529 plan you can transfer some or all of the balance to another child’s account. You can even transfer it to a parent if the parent wants to go to school.</p>
<p>In addition, since the 529 is not in the child’s name, there is a better chance of financial aid since a smaller % of the parents’ assets are considered.</p>
<p>Also, 529s have state tax breaks for many states.</p>
<p>I am keeping both, but the vast majority of the funds are in 529 plans.</p>
<p>Let me try again. Other than being sued by my grandson, which is not going to happen as he is gravely ill in a vegetative state, can I empty his Maryland UTMA account so it will not count as assets of his. I know that I could convert the UTMA account to a 529 account so that most of the balances will be considered my assets, but that’s only for purposes of college financial aid, which my grandson unfortunately will not need. In other words, am I going to be thrown in jail if I empty the account. What are the penalties other than paying tax on earnings and the 10% penalty the IRS will impose.</p>
<p>Funds in a UTMA must be used for the benefit of the minor; there’s no legal way to remove funds from a UTMA other than for the grandson’s expenses.</p>
<p>Is he expected to survive? If not, on his death the entire UTMA will become part of his estate and pass to his survivors according to your state’s inheritance laws. </p>
<p>Since your grandson is in a vegetative state he can’t create a will himself. Perhaps you can get a court order declaring him incompetent and have Power of Attorney executed so that a will can be created, with the UTMA funds inherited by you. No doubt you’ll need the parents’ cooperation for this. If he’s under 18 it might not be possible to create a POA document, it would depend on the state laws.</p>