Also, since UGMA and UTMA accounts are in the name of a single child, the funds are not transferrable to another beneficiary. For financial aid purposes, custodial accounts are considered assets of the student. This means that custodial bank and brokerage accounts have a high impact on financial aid eligibility.
Does having a custodial account affect financial aid?
Custodial accounts can have a heavy impact on financial aid. Because the money in a custodial account is your child’s asset and not yours, federal financial aid formulas consider 20% of the money available to pay for college. Compare this to 529 plans, which are given more favorable treatment for financial aid.
How does fafsa check your assets?
FAFSA doesn’t check anything, because it’s a form. However, the form does require you to complete some information about your assets, including checking and savings accounts. Whether or not you have a lot of assets can reflect on your ability to pay for college without financial aid.
Who is considered the owner of an UGMA account?
For federal tax purposes, the minor or beneficiary is considered the owner of all assets in a UGMA account and the income they generate. But these accounts’ earnings can be taxed either to the child or the parent.
Can a minor withdraw money from an UGMA account?
There are no withdrawal penalties. However, because UGMA assets are technically owned by the minor, they do count as assets if he applies for federal financial aid for college, possibly decreasing his eligibility. Once they reach the age of majority in their state, minors are granted full access to their UGMA account.
What kind of lawyer is a financial services lawyer?
A financial services lawyer is an attorney who helps people with financial legal issues. This kind of lawyer often specialize in a certain type of finance law. A financial lawyer can help clients with a wide variety of financial matters.
When to use UGMA / UTMA money before college?
When this doesn’t matter: you expect to use the funds long before college. Example: A beloved grandparent sets up an UGMA / UTMA, and expresses to you their hope that you’ll use the money to finance extracurricular lessons and summer camp. If you expect to use this money long before college, then the financial aid weighting shouldn’t be a problem.
