Oops - Undoing a UTMA account!?

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Davis123
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Oops - Undoing a UTMA account!?

Post by Davis123 »

We have saved a chunk of money in our children's 529 account since they were born. Then my parents surprised us and said that they also have monies in a 529 for them.
Because we didn't want to have too much money tied up in a 529 fund, we decided to open up a UTMA account for each child and invest in the Target 2060 Retirement Fund with money we received for them from my in-laws. We wanted to "surprise" them after they graduated with some monies to help get them started.
But, now we have learned about our mistake -- that the UTMA money (about 9500 now) will count against them for financial aid each year.
I see one option is to put the UTMA money into the 529 fund. But, we don't want to have this much money in a 529.
Is there any other option to roll the UTMA money into?
Makefile
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Re: Oops - Undoing a UTMA account!?

Post by Makefile »

My understanding is once it's in an UTMA, it's theirs, and has to be used for their benefit and also not for inherent expenses of being a parent (food, water, shelter).

You don't mention their ages. I think a suitable use would be, if they are teenagers and have jobs making at least $6000, to pull from the UTMA and fund a Roth IRA for them.

You also have to consider whether the financial aid penalty outweighs the additional financial freedom/options by retaining the money, whether you would have qualified for financial aid in the first place, etc. Don't allow the carrot (FAFSA) and stick (surprise! it's almost all loans for anyone middle class or higher) to cause you to do counterproductive things you wouldn't ever consider otherwise (avoid saving money at all costs).
alex_686
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Re: Oops - Undoing a UTMA account!?

Post by alex_686 »

The impact on financial aid should be minimal.
Makefile wrote: Wed Jun 16, 2021 4:34 pm You don't mention their ages. I think a suitable use would be, if they are teenagers and have jobs making at least $6000, to pull from the UTMA and fund a Roth IRA for them.
Check, but there are options such as a first car or summer camp. You can then park a equivalent amount in your account to be given at a better date.
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JustGotScammed
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Re: Oops - Undoing a UTMA account!?

Post by JustGotScammed »

Davis123 wrote: Wed Jun 16, 2021 3:58 pm We have saved a chunk of money in our children's 529 account since they were born. Then my parents surprised us and said that they also have monies in a 529 for them.
Because we didn't want to have too much money tied up in a 529 fund, we decided to open up a UTMA account for each child and invest in the Target 2060 Retirement Fund with money we received for them from my in-laws. We wanted to "surprise" them after they graduated with some monies to help get them started.
But, now we have learned about our mistake -- that the UTMA money (about 9500 now) will count against them for financial aid each year.
I see one option is to put the UTMA money into the 529 fund. But, we don't want to have this much money in a 529.
Is there any other option to roll the UTMA money into?
A lot of schools will make an exception if you are Black or part of a minority class so hopefully that is applicable to your situation. If not, there are certain schools that do no consider UTMA funds against children and it could be helpful to identify and apply to those schools. Finally, merit scholarships and in-state college are options that can be pursued even if aid is withheld due to a child's assets.
Makefile
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Re: Oops - Undoing a UTMA account!?

Post by Makefile »

JustGotScammed wrote: Wed Jun 16, 2021 4:49 pm
Davis123 wrote: Wed Jun 16, 2021 3:58 pm We have saved a chunk of money in our children's 529 account since they were born. Then my parents surprised us and said that they also have monies in a 529 for them.
Because we didn't want to have too much money tied up in a 529 fund, we decided to open up a UTMA account for each child and invest in the Target 2060 Retirement Fund with money we received for them from my in-laws. We wanted to "surprise" them after they graduated with some monies to help get them started.
But, now we have learned about our mistake -- that the UTMA money (about 9500 now) will count against them for financial aid each year.
I see one option is to put the UTMA money into the 529 fund. But, we don't want to have this much money in a 529.
Is there any other option to roll the UTMA money into?
A lot of schools will make an exception if you are Black or part of a minority class so hopefully that is applicable to your situation. If not, there are certain schools that do no consider UTMA funds against children and it could be helpful to identify and apply to those schools. Finally, merit scholarships and in-state college are options that can be pursued even if aid is withheld due to a child's assets.
Change colleges over a $9500 UTMA?
You make it sound like the admission decision, rather than just scholarship/loans, is based on assets. Even if the college considers UTMA (as FAFSA does), what's the harm? "Sorry responsible saver we will not allow you to take out a student loan?"
Outside of the case of a need based scholarship (for which the much larger 529 would be problematic) don't let the tail wag the dog. I mean remember the worst case here is having to pay tuition.
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Re: Oops - Undoing a UTMA account!?

Post by Grt2bOutdoors »

Davis123 wrote: Wed Jun 16, 2021 3:58 pm We have saved a chunk of money in our children's 529 account since they were born. Then my parents surprised us and said that they also have monies in a 529 for them.
Because we didn't want to have too much money tied up in a 529 fund, we decided to open up a UTMA account for each child and invest in the Target 2060 Retirement Fund with money we received for them from my in-laws. We wanted to "surprise" them after they graduated with some monies to help get them started.
But, now we have learned about our mistake -- that the UTMA money (about 9500 now) will count against them for financial aid each year.
I see one option is to put the UTMA money into the 529 fund. But, we don't want to have this much money in a 529.
Is there any other option to roll the UTMA money into?
You saved a chunk of money in a 529 plan - good, less “financial aid” or “loans”.
Your parents saved in a 529 plan also - good, less financial aid or loans.

Your kids have money in an UTMA - good, less financial aid or loans. What’s the problem?

Financial aid - is a loan. It’s not a gift from the school or the bank to the child.

Merit scholarship - gift from child to themselves for the obvious hard work they contributed along the way of attending school. You can get a merit scholarship even if you have money in the bank.
And even if they “did withhold” would you want to subject yourself or your child to the hope that the scholarship gods looked upon you favorably or not?

Grant - free money.

Schools will not overlook merit aid because kid holds an UTMA.

UTMA - flexibility to use the funds for things outside of normal parenting duties.

Go here and read all about what the funds can be used for. https://fairmark.com/kids-and-college/utma/

Kid needs a car? UTMA, kid wants to go on school trip to Europe - UTMA. Kid wants to buy a musical instrument or a down comforter for the dorm? UTMA.
Last edited by Grt2bOutdoors on Wed Jun 16, 2021 5:12 pm, edited 1 time in total.
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livesoft
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Re: Oops - Undoing a UTMA account!?

Post by livesoft »

The 529 plan will count against them for financial aid. Your salaries will count against them for financial aid.

Do you believe your family will get financial aid that is not just in the form of loans? If not, then nothing wrong with having money to pay for college from other sources.
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techiegirl
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Re: Oops - Undoing a UTMA account!?

Post by techiegirl »

Grt2bOutdoors wrote: Wed Jun 16, 2021 5:06 pm
You saved a chunk of money in a 529 plan - good, less “financial aid” or “loans”.
Your parents saved in a 529 plan also - good, less financial aid or loans.

Your kids have money in an UTMA - good, less financial aid or loans. What’s the problem?

Financial aid - is a loan. It’s not a gift from the school or the bank to the child.

Merit scholarship - gift from child to themselves for the obvious hard work they contributed along the way of attending school. You can get a merit scholarship even if you have money in the bank.

Grant - free money.

Schools will not overlook merit aid because kid holds an UTMA.
I have a child heading to college in the fall. My understanding is that Grants are only available to those with low income ($26k and under?). Unless your kid received merit scholarships, all most of us get from FAFSA will be loans. My daughter has a 529 and UTMA account (as well as her brother’s 529, who is not planning on attending college). I told her to decline the loan. I might be in the minority, but I don’t see the point of getting student loans when she has enough money in her 529 and UTMA accounts to pay for her years of college. I don’t want her to graduate with a 100k or more student loan and struggling to pay it off.

In the end, she opted to stay in state instead of spending double that for an out of state college because she can afford to pay for in state with the money that she has saved up already.
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Re: Oops - Undoing a UTMA account!?

Post by Grt2bOutdoors »

techiegirl wrote: Wed Jun 16, 2021 5:12 pm
Grt2bOutdoors wrote: Wed Jun 16, 2021 5:06 pm
You saved a chunk of money in a 529 plan - good, less “financial aid” or “loans”.
Your parents saved in a 529 plan also - good, less financial aid or loans.

Your kids have money in an UTMA - good, less financial aid or loans. What’s the problem?

Financial aid - is a loan. It’s not a gift from the school or the bank to the child.

Merit scholarship - gift from child to themselves for the obvious hard work they contributed along the way of attending school. You can get a merit scholarship even if you have money in the bank.

Grant - free money.

Schools will not overlook merit aid because kid holds an UTMA.
I have a child heading to college in the fall. My understanding is that Grants are only available to those with low income ($26k and under?). Unless your kid received merit scholarships, all most of us get from FAFSA will be loans. My daughter has a 529 and UTMA account (as well as her brother’s 529, who is not planning on attending college). I told her to decline the loan. I might be in the minority, but I don’t see the point of getting student loans when she has enough money in her 529 and UTMA accounts to pay for her years of college. I don’t want her to graduate with a 100k or more student loan and struggling to pay it off.
Precisely. Unless it’s a Stafford loan where interest is not due until 6 months after graduation. I had Stafford loans in grad school, paid nothing until after graduation. Parent plus loans my understanding is clock starts ticking when you hand check over to the bursar to pay for school. Then I’d pass if that’s all they offered and you had other assets available to pay for it.
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Re: Oops - Undoing a UTMA account!?

Post by Wiggums »

livesoft wrote: Wed Jun 16, 2021 5:09 pm The 529 plan will count against them for financial aid. Your salaries will count against them for financial aid.

Do you believe your family will get financial aid that is not just in the form of loans? If not, then nothing wrong with having money to pay for college from other sources.
I agree.
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Re: Oops - Undoing a UTMA account!?

Post by RickBoglehead »

Pretty clear OP should have learned more about UTMAs before putting money in them. As noted, this is the child's money. Nothing can be "undone". Up
As stated, so many waste time worrying about financial aid when the reality is that most on this forum aren't going to get a dime of free money, and loans would be considered outrageous if they were the same rate for a mortgage.

Leftover 529 funds can be used for grad school or future generations. Our 529s will be able to find 4 or more grandchildren, we have 2 now.
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illumination
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Re: Oops - Undoing a UTMA account!?

Post by illumination »

I got into a similar situation and I found it was fairly easy to just spend it down for their benefit. Orthodontics alone will easily eat up $9500 between two kids and will likely be way before you even start looking at colleges. Do they need a laptop, phone, car, etc when they get older? That's just one of many ways it can be spent.

But there's no way to just "roll it" into an account where it becomes your property. Its "theirs" and your in charge of spending it for their benefit.
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Re: Oops - Undoing a UTMA account!?

Post by Jablean »

You'll be much better served by not worrying about this at all and instead focus on the AOTC tax credit and learn it's rules which are all about spending money once a kid is in college and then claiming a tax credit.

My mom had told me she was saving for my kid's college so I assumed 529 and yeah I read up on which 529 to spend first which new tax changes now don't care about. And then when she passed a few months before my kid was due to graduate from HS and I inherited her accounts that it was actually a UTMA and so like you I was all "nooooo". Well pull up a practice FAFSA report and put in some really estimated money (they ask about your savings and the houses you own - all sorts of things that you don't even put in your taxes) and it will pop up and say - "Congratulations you have qualified for....(wait for it)....a loan".

I was glad I just tried it out at the practice site as I've never felt the need to fill out a real one. Filing my first AOTC tax credit this year and I'm spreadsheeting how I'm going to use the 529 - so far since it's an in-state college and able to live at home it looks like my kid won't even have to touch the AOTC UTMA unless he goes to grad school.

edited
Last edited by Jablean on Fri Jun 18, 2021 7:13 am, edited 1 time in total.
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Re: Oops - Undoing a UTMA account!?

Post by RickBoglehead »

Jablean wrote: Thu Jun 17, 2021 3:18 am You'll be much better served by not worrying about this at all and instead focus on the AOTC tax credit and learn it's rules which are all about spending money once a kid is in college and then claiming a tax credit.

My mom had told me she was saving for my kid's college so I assumed 529 and yeah I read up on which 529 to spend first which new tax changes now don't care about. And then when she passed a few months before my kid was due to graduate from HS and I inherited her accounts that it was actually a UTMA and so like you I was all "nooooo". Well pull up a practice FAFSA report and put in some really estimated money (they ask about your savings and the houses you own - all sorts of things that you don't even put in your taxes) and it will pop up and say - "Congratulations you have qualified for....(wait for it)....a loan".

I was glad I just tried it out at the practice site as I've never felt the need to fill out a real one. Filing my first AOTC tax credit this year and I'm spreadsheeting how I'm going to use the 529 - so far since it's an in-state college and able to live at home it looks like my kid won't even have to touch the AOTC unless he goes to grad school.
Good advice on the financing- so many think they're going to get free money and jump through hoops to discover they aren't.

Consider having your child live on campus even if local. Whole different experience.
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Re: Oops - Undoing a UTMA account!?

Post by lakpr »

Jablean wrote: Thu Jun 17, 2021 3:18 am Filing my first AOTC tax credit this year and I'm spreadsheeting how I'm going to use the 529 - so far since it's an in-state college and able to live at home it looks like my kid won't even have to touch the AOTC unless he goes to grad school.
My understanding is that AOTC is not applicable for graduate school, only for undergraduate studies. You will have to take the Lifetime Learning credit for higher studies. Please double check and make sure you don't lose out on the credit thinking you could use it later.
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Re: Oops - Undoing a UTMA account!?

Post by Jablean »

lakpr wrote: Thu Jun 17, 2021 6:16 am
Jablean wrote: Thu Jun 17, 2021 3:18 am Filing my first AOTC tax credit this year and I'm spreadsheeting how I'm going to use the 529 - so far since it's an in-state college and able to live at home it looks like my kid won't even have to touch the AOTC unless he goes to grad school.
My understanding is that AOTC is not applicable for graduate school, only for undergraduate studies. You will have to take the Lifetime Learning credit for higher studies. Please double check and make sure you don't lose out on the credit thinking you could use it later.
My bad, yes AOTC is only for first 4 years of undergrad. I meant to write he won't have to touch his UTMA.
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Re: Oops - Undoing a UTMA account!?

Post by deltaneutral83 »

I'm confused, why would they need financial aid for college if they have 529's from both parents and grandparents?
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Re: Oops - Undoing a UTMA account!?

Post by Grt2bOutdoors »

deltaneutral83 wrote: Fri Jun 18, 2021 8:00 am I'm confused, why would they need financial aid for college if they have 529's from both parents and grandparents?
Because a 529 plan is not a miracle worker! You need to have enough money in the 529 plan to pay the bills. You can have 2 529 plans, each holds $5,000. School costs $40,000. While $10,000 helps in reducing the outlay, you still need $30,000 from somewhere to be able to pay the tuition in full.
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Re: Oops - Undoing a UTMA account!?

Post by deltaneutral83 »

Grt2bOutdoors wrote: Fri Jun 18, 2021 1:14 pm
deltaneutral83 wrote: Fri Jun 18, 2021 8:00 am I'm confused, why would they need financial aid for college if they have 529's from both parents and grandparents?
Because a 529 plan is not a miracle worker! You need to have enough money in the 529 plan to pay the bills. You can have 2 529 plans, each holds $5,000. School costs $40,000. While $10,000 helps in reducing the outlay, you still need $30,000 from somewhere to be able to pay the tuition in full.
In this situation the OP mentioned that "too much money" in 529's was an issue, and then mentioned something about financial aid. so that was confusing as I was asking within the context of the OP, not in general.
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Re: Oops - Undoing a UTMA account!?

Post by Grt2bOutdoors »

deltaneutral83 wrote: Fri Jun 18, 2021 1:22 pm
Grt2bOutdoors wrote: Fri Jun 18, 2021 1:14 pm
deltaneutral83 wrote: Fri Jun 18, 2021 8:00 am I'm confused, why would they need financial aid for college if they have 529's from both parents and grandparents?
Because a 529 plan is not a miracle worker! You need to have enough money in the 529 plan to pay the bills. You can have 2 529 plans, each holds $5,000. School costs $40,000. While $10,000 helps in reducing the outlay, you still need $30,000 from somewhere to be able to pay the tuition in full.
In this situation the OP mentioned that "too much money" in 529's was an issue, and then mentioned something about financial aid. so that was confusing as I was asking within the context of the OP, not in general.
Guess we have to wait for the OP to respond. You raise good points.
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Re: Oops - Undoing a UTMA account!?

Post by dodecahedron »

Jablean wrote: Fri Jun 18, 2021 7:10 am
lakpr wrote: Thu Jun 17, 2021 6:16 am
Jablean wrote: Thu Jun 17, 2021 3:18 am Filing my first AOTC tax credit this year and I'm spreadsheeting how I'm going to use the 529 - so far since it's an in-state college and able to live at home it looks like my kid won't even have to touch the AOTC unless he goes to grad school.
My understanding is that AOTC is not applicable for graduate school, only for undergraduate studies. You will have to take the Lifetime Learning credit for higher studies. Please double check and make sure you don't lose out on the credit thinking you could use it later.
My bad, yes AOTC is only for first 4 years of undergrad. I meant to write he won't have to touch his UTMA.
Technically AOTC is for "first four years of post-secondary education." Could include graduate as well as undergrad. (E.g., student finishes high school with a ton of AP, IB, and/or dual-enrollment classes under their belt, then only needs two years matriculation in college to finish their BA, can then use AOTC for the first two years of grad school.)
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Re: Oops - Undoing a UTMA account!?

Post by Jablean »

dodecahedron wrote: Fri Jun 18, 2021 2:19 pm
Jablean wrote: Fri Jun 18, 2021 7:10 am
lakpr wrote: Thu Jun 17, 2021 6:16 am
Jablean wrote: Thu Jun 17, 2021 3:18 am Filing my first AOTC tax credit this year and I'm spreadsheeting how I'm going to use the 529 - so far since it's an in-state college and able to live at home it looks like my kid won't even have to touch the AOTC unless he goes to grad school.
My understanding is that AOTC is not applicable for graduate school, only for undergraduate studies. You will have to take the Lifetime Learning credit for higher studies. Please double check and make sure you don't lose out on the credit thinking you could use it later.
My bad, yes AOTC is only for first 4 years of undergrad. I meant to write he won't have to touch his UTMA.
Technically AOTC is for "first four years of post-secondary education." Could include graduate as well as undergrad. (E.g., student finishes high school with a ton of AP, IB, and/or dual-enrollment classes under their belt, then only needs two years matriculation in college to finish their BA, can then use AOTC for the first two years of grad school.)
I'm going to disagree with them being able to use it for grad school based on page 18 of https://www.irs.gov/pub/irs-pdf/p970.pdf
Completion of first 4 years. A student has completed the first 4 years of postsecondary education if the institution at which the student is enrolled awards the student 4 years of academic credit at that institution for coursework
completed by the student before 2020. This student generally wouldn't be an eligible student for purposes of the
American opportunity credit.

Exception. Any academic credit awarded solely on the basis of the student's performance on proficiency examinations is disregarded in determining whether the student has completed 4 years of postsecondary education
I don't think dual-credit would qualify for the exception as credits are not given on the basis of a test. AP however would as credits are test based, as is CLEP etc. Don't know about IB.

Here is a scenario from the same publication where a grad student was eligible but only for one semester.
Example 2. After taking classes at College V on a part-time basis for a few years, Shelly became a full-time student for the 2020 spring semester. College V classified Shelly as a second-semester senior (fourth year) for the
2020 spring semester and as a first-semester graduate student (fifth year) for the 2020 fall semester. Because
College V didn't classify Shelly as having completed the first 4 years of postsecondary education as of the beginning of 2020, Shelly is an eligible student for tax year 2020. Therefore, the qualified education expenses paid
for the 2020 spring semester and the 2020 fall semester are taken into account in figuring the American opportunity credit for 2020
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Re: Oops - Undoing a UTMA account!?

Post by drumboy256 »

The thing that I think you're missing is that the UTMA is actually a GOOD thing for your kids. The thought people (that I have observed on this board) is they treat the UTMA as a kids Roth which it is not. At this point, just stop funding it and call it a day.
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Re: Oops - Undoing a UTMA account!?

Post by nolesrule »

Jablean wrote: Sat Jun 19, 2021 12:14 am
I don't think dual-credit would qualify for the exception as credits are not given on the basis of a test. AP however would as credits are test based, as is CLEP etc. Don't know about IB.
IB is going to depend. I earned the IB Diploma, and back in the mid-90s the states schools in Florida would award you with an automatic generic 30 credit hours for earning the diploma that would count as electives toward an Associate of Arts degree and allowed you to essentially enter school as a sophomore. However they would also give credit for specific courses based on specific IB exam results like they do with AP exams which either replaced some or were added on top of the generic credit hours.
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