Educational savings: 529 account or custodial accounts for my child?

marsha-woelber-headshot1Below is a guest post by Marsha Woelber, a Partner at Independent Investment Services, LLC/Securities Offered through LPL Financial, Member FINRA/SIPC

Should I have a custodial or 529 account for my child? It depends. What is the money for? Custodial accounts are often used to allow minors to have assets titled in their names but managed by an adult.  You may have seen the terms UTMA or UGMA – this stands for Uniform Transfer to Minors Act and Uniform Gift to Minors Act. Assets placed into these accounts remain under the control of the parents until the child reaches the age of majority (18 in most states)

Use of funds:
A parent may use the funds in a custodial account for expenses benefitting the child. This does not include everyday expenses like food, but does include a computer, car, etc. A child has full access to the funds when he or she reaches legal age and may use the money for anything. Contrast this to a 529 Savings Plan, where the money may only be used (without penalty) for qualified higher education expenses.  Please see my previous on college savings for more information on 529 accounts by clicking here.

Note the Financial Aid Consideration: The Free Application for Federal Student Aid (FAFSA) is the form used by the U.S. Department of Education to determine eligibility for federal, state, and college-sponsored financial aid.The Department of Education conducts an analysis based on financial information, such as income, assets and other household information.  Funds in a custodial account are considered assets of the child and have a high impact on financial aid.   529 accounts owned by a parent have a low impact on financial aid eligibility.

Marsha Woelber is a Partner at Independent Investment Services, LLC/Securities Offered through LPL Financial, Member FINRA/SIPC. She can be reached @ or 912-650-2852. The opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please talk to your tax advisor before executing any strategy

Marsha does occasional posts on SouthernMamas about  becoming financially savvy.  To read her previous posts, click here.

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