<p>We want to liquidate the custodial account to use it for a portion of a down payment on a house. The amount is $20,000. This will put us in a better school district for her education. She is only in 2nd grade. Tips? Thoughts? What are the possible ramifications? Schwab is vague on their end.</p>
<p>Hope this helps to answer the question:</p>
<p>“Paying family expenses. You can get into some tough issues here. Suppose tapping the account is the only way the parent can afford to live in a nice neighborhood. And the reason the parent wants to live in the nice neighborhood is better schools and environment for the child. Can you charge rent from the child and pay it from the account? Use the account for part of the down payment on a home? If push came to shove I would probably have to say these types of expenditure are improper (legally, not necessarily morally), but others might disagree.”</p>
<p><a href=“http://fairmark.com/custacct/spend.htm”>http://fairmark.com/custacct/spend.htm</a></p>
<p>My sister built in one of the “best” districts in the state. She ended up homeschooling several kds.
Still schools may be great one year & suck for the next five.
Better save the money for tutoring or private if needed.</p>
<p>The $20,000 belongs to your daughter and the law requires that you invest it on her behalf until she reaches the age of majority. If you plan to refund to her a proportional share of the home’s value when she reaches 18 or 21, you could perhaps consider the money a real estate investment. So if you purchase a house for $200,000 and it is worth $300,000 when she comes of age, you would owe her $30,000-not the best investment. However without planning to refund the initial investment it would be difficult to argue that using her money to buy a better home, which benefits the whole family, is in her best financial interest- just my opinion. </p>
<p>We have found Schwab to be the most restrictive and unhelpful of all financial institutions when it comes to custodial accounts. They wouldn’t let us move money from an UTMA account to a Coverdell ESA for the same beneficiary because “their lawyers” decided it shouldn’t be allowed. We had to first withdraw the money from the custodial account, deposit it in a bank account, then write a check for deposit to the Coverdell account every year. Their rationale is that custodial funds are explicitly for the use of the named beneficiary, whereas Coverdell funds could be transferred to another family member. I don’t know if this is an actual banking rule or if Schwab is just playing nanny.</p>
<p>Are you going to make any improvements to the property, like addition of a fence or a playset in the yard, or remodel of a room for your D? Buy new furniture, etc.? What momsquad said is a good idea. maybe you can document that you would return the money and the earnings to your D upon the sale of the property.</p>
<p>Since it’s $20,000, I’d strongly urge you to consider keeping the money for your D’s education directly–school, college, tutoring, etc. It is possible you could get audited down the road and have to give back the funds, plus I believe paying a penalty. I’d check with your tax advisor before making any moves, just so you don’t have any big surprises in the future.</p>