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Author: aroyalty7 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121563  
Subject: UGMA/UTMA to Coverdell ESA? Date: 6/4/2004 12:55 PM
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I've read that one can transfer the assets in a UGMA/UTMA account into a 529 plan. Can those assets be transferred into a Coverdell ESA?
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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72094 of 121563
Subject: Re: UGMA/UTMA to Coverdell ESA? Date: 6/4/2004 1:05 PM
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Yes, the UGMA acct. would be considered the child's money. And the child can contribute to his own ESA. But an ESA has an annual contribution limit of $2,000 for a beneficiary from all sources. I generally prefer 529 plans.

Bill






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Author: aroyalty7 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72095 of 121563
Subject: Re: UGMA/UTMA to Coverdell ESA? Date: 6/4/2004 1:15 PM
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Yes, the UGMA acct. would be considered the child's money. And the child can contribute to his own ESA. But an ESA has an annual contribution limit of $2,000 for a beneficiary from all sources. I generally prefer 529 plans.

Bill


Thanks, Bill. I generally prefer 529 plans, too, as the account owner maintains control of the account and there is no $2,000 contribution limit. However, 529 plans only fund "tuition, fees, room and board at qualified higher education institutions". My oldest son is 10. I was thinking about an ESA because we may send him to a private school for middle school (and possibly high school). The balance that we have saved for him in a UGMA account could help us pay for private middle school in 1-2 years.

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Author: Littlechap Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72127 of 121563
Subject: Re: UGMA/UTMA to Coverdell ESA? Date: 6/6/2004 12:50 AM
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"I've read that one can transfer the assets in a UGMA/UTMA account into a 529 plan. Can those assets be transferred into a Coverdell ESA?"

Yes, the UGMA acct. would be considered the child's money. And the child can contribute to his own ESA. But an ESA has an annual contribution limit of $2,000 for a beneficiary from all sources. I generally prefer 529 plans.

Bill


Hi,

I could be wrong, but I'm not sure a blanket answer will work. The money in a UTMA/UGMA is an "irrevocable" gift" to the minor, whereas the 529 -- if owned by the custodian -- can be shifted to a different beneficiary.

Thus, to effect a transfer as described in the original question, the child would have to be the owner of the 529 plan, so that the chain of ownership remains intact -- but so does the custodianship.

And apparently, this can get complicated. For instance, at http://www.fairmark.com/custacct/529plans.htm the author notes "Under the Uniform Act, the custodian's responsibility to preserve the assets for the benefit of the child doesn't terminate when cash or assets are withdrawn from a custodial account. If custodial assets are invested in a 529 account, those assets continue to be assets owned by the child and subject to the protections afforded by the Uniform Act."

It goes on from there, noting among other things that the UTMA/UGMA is not limited to educational uses, whereas the 529 is. And so on. Meanwhile, there are other potential reasons for the child not to own a 529 in his/her own name, as compared to an ESA.

The money in the UTMA, like the money in the ESA, must be keyed to the child's SS# because it is owned by the child. Putting the 529 in the child's name would remove one of the bigger incentives behind the 529 model, i.e. reducing the child's directly-owned assets so that he/she can qualify for financial aid more readily. If a grandparent owns the 529 account, for example, it will never show up on most applications when it comes time to determining financial need.

One final reason not to bother with the complications involved is that the 529 can't be controlled or directed by the owner. There are increasingly better-run plans coming along in various states, but you generally do not get to pick and choose specific funds, or fine-tune the asset allocation to your own tastes or judgment. Many people find the management company to do a decent job, but in many states it's still a big issue.

And if you're in one of the states with the less-attractive plans, and want to go out of state, then there is not state tax incentive. Last I heard, the federal tax incentive was technically only temporary (although many folks expect the law to be renewed).

There are many pros and cons for 529s in general, which are discussed elsewhere on the Fool. But moving money from a UTMA to a 529 would not seem to make as much sense as moving it into an ESA -- with the previously stated caveat that the annual contribution limit could be a problem, especially if the child is older.

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