Non-custodial 529 started with UTMA funds.

<p>My Dad (who is my non-custodial parent) recently pulled $31,000 from my UTMA accounts and is moving them to a 529 at a state bank. He is in the process of getting most of what is in the UTMAs liquidated and depositing it into this 529. Since there is no way the bank will know this money is funded from an UTMA, do I not list this 529? Also, if it is somehow considered a UTMA/529, I don't have to report it because it is treated as my non-custodial parent's, correct?</p>

<p>There are two relevant scenarios for reporting or not reporting this 529. #1 Assets that are owned by the student must be reported on FAFSA, regardless of who the custodian of the account is. #2 Assets that have the student as beneficiary but that are owned by anyone else besides the custodial parent are not reported on FAFSA.</p>

<p>In your case #1 applies. You are the owner of the UTMA account. If your father rolled those funds over to a UTMA/529, you are still the owner of the account even if he is the custodian. The bank would know this is a rollover account and would title the 529 in your name, the same as the originating UTMA. This is your money and must remain in an account owned by you. The only way to legally liquidate a UTMA and move the funds into an account owned by your father is if you're no longer a minor and have gifted the money to your father, in which case you would owe gift taxes on the amount above the tax exclusion of $13,000.</p>

<p>Like all 529s, it would be reported as a parent asset on FAFSA (even though it's owned by the student).</p>

<p>Yes, but my father did not rollover the account; he liquidated it and moved the money into a 529. So you're saying that this is technically illegal? To clarify, the money was at TD Ameritrade and Fidelity he moved it over to BB&T for tax purposes, and since he is simply depositing this money, there will be no UTMA title in the name. Will this get me into any trouble? And should I still mark it as a parent asset? (I'm assuming that it would be risky not to do so, correct?)</p>

<p>If the money will still be used for your benefit, it's not technically illegal. Your father won't get into trouble unless he takes off with your money and you decide to sue him for it. If he plans to use the money for your college, then in theory it's still your money even though now it's in your father's name. However moving funds around for the purpose of hiding them from financial aid reporting is not exactly ethical. </p>

<p>Assets of a non-custodial parent are not reported at all on FAFSA, so you would not report this money that's now owned by your father.</p>

<p>You also owe gift taxes on the amount over the exclusion, which is $18,000. Gift taxes are paid by the giver, not the recipient.</p>

<p>Okay. To clarify, this money was in two accounts and my Dad is in the process of writing two checks, one for $18k and one for $13k. (The UTMA account with $13k has not even been dealt with yet, but $18k from the old UTMA is awaiting confirmation at the new 529.) Does this mean that I'll only pay gift taxes on the $5k since the accounts were totally separate and I'm theoretically making two separate "gifts"? Should I have my Dad simply rollover the $13k if I do have to pay gift taxes on it (because they seem quite high)?</p>

<p>By the way, thank you for answering my questions. (I don't know anyone knowledgable enough about the situation to really help me.)</p>

<p>Well, technically, if it turns out to be a gift, a gift tax return should be filed, but no taxes would actually be owed. The gift tax computed on the return is used to reduce the unifed credit at the time of death of the giver of the gift. Essentially, an "excess gift" reduces the amount that can be passes tax free at death ($5,120,000 for 2012).</p>

<p>Publication</a> 950 (10/2011), Introduction to Estate and Gift Taxes</p>

<p>The IRS publications are invaluable in these cases, but I'm not sure I'd consider this a gift at all. I'd say it sounds like an attempt to cheat the system for financial aid.</p>

<p>We weren't trying to "cheat" the system. I will defend myself from this accusation. Since custodial 529/UTMA accounts are listed as parent assets (around 5% EFC per year contribution) as opposed to the 20% that a UTMA is, we decided it was best just to try to get a lower rate on FAFSA. (I will also note that I have to list all of this on the Profile.) The problem is that my parents are not necessarily "on top" of this stuff, so I'm left to deal with it :) (sarcastic smile). I told my Dad to "convert" the accounts, but I didn't actually think about him simply drawing the money out and starting a new 529.</p>

<p>I simply wanted to do what is technically legal for me to pay the least for college since my parents started these UTMAs at a time when 529s did not exist. Cheating the system was never on my mind.</p>

<p>I guess I should have my Dad ask the bank if this should be considered a gift. So you're saying that I wouldn't owe taxes? I'm a bit worried because I found a tax chart that would put me at having to owe thousands of dollars for this... but I really don't know if that applied to me.</p>

<p>It's perfectly legitimate to transfer UTMA funds to a UTMA/529. But it doesn't sound like that's what your father did. It probably isn't too late to change ownership of the account - just talk to the bank where the new account is and see what they say.</p>

<p>Change the ownership of the account to whom? If he changes it to me, then it's my asset, and I have to report it. Or should I just report it the same way as a UTMA/529 even though it's not, because I have no problem with doing that.</p>

<p>Yes, change the ownership to you, since it's your money to begin with. And yes, you'd have to report it. A 529 in the amount of $31,000 will add $1736 to your EFC. You can probably make around that much every year if invested wisely, so you really haven't "lost" anything, and you'll feel better knowing you followed the rules.</p>

<p>And remember, now that this us a 529 rather than an UTMA, all the money is designated for educational expenses. You are going to have to use it up in the next four years unless you have specific plans for grad school, or another person that you can pass it on to.</p>

<p>You are truly fortunate that your family has been able to set aside this kind of money for your education! Don't forget to thank them for it!</p>

<p>Okay. I'll make sure the account is under my name. Thanks everyone for helping me out with this.</p>