About a year ago, my mother very graciously gifted my children money into a UTMA account with Edward Jones. The obvious and stated use of the money was for higher education. I don't believe my mother would have known the various types of accounts she could have used. I'm interested in why the Financial Advisor didn't suggest a 529.

Now, for various reasons, she's asking me to take over as custodian of the account. At this point, I'm not real sure how difficult it is to change custodians of a UTMA.

My Questions:
What are the tax implications for me? It seems like I would be paying taxes on the gains of the UTMA.

Are their benefits associated to keeping these UTMA accounts rather than transferring them to a 529?

Any other comments regarding UTMA vs. 529?

Being a fan of using Vanguard index funds, my initial thought when she asked me to take control of the accounts was to move the money out of the Edward Jones managed mutual fund and get it into VTSAX.

We're talking about two separate accounts, both currently around $24k. My kids are 3 and 5.

TIA

arrow said:

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About a year ago, my mother very graciously gifted my children money into a UTMA account with Edward Jones. The obvious and stated use of the money was for higher education. I don't believe my mother would have known the various types of accounts she could have used. I'm interested in why the Financial Advisor didn't suggest a 529.

Now, for various reasons, she's asking me to take over as custodian of the account. At this point, I'm not real sure how difficult it is to change custodians of a UTMA.

My Questions:
What are the tax implications for me? It seems like I would be paying taxes on the gains of the UTMA.

Are their benefits associated to keeping these UTMA accounts rather than transferring them to a 529?

Any other comments regarding UTMA vs. 529?

Being a fan of using Vanguard index funds, my initial thought when she asked me to take control of the accounts was to move the money out of the Edward Jones managed mutual fund and get it into VTSAX.

We're talking about two separate accounts, both currently around $24k. My kids are 3 and 5.

TIA

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What are the tax implications for me? It seems like I would be paying taxes on the gains of the UTMA.
Gains are taxed to the minor. You would only have to pay gift taxes if a contribution exceeded the limit.

Are their benefits associated to keeping these UTMA accounts rather than transferring them to a 529?
Not really. If you want to make sure they are used for college, then use a 529. Once the minor becomes of age and takes control of the account then they can use the money for whatever they want.

All in all, a 529 is the better option for college savings, but you may want to make sure of the rules for transferring those assets to a 529, as I'm pretty sure there was some special rules/taxes that you will need to worry about.

I'm not sure why the advisor would have suggested that account over a 529 unless your mother was asked if she wanted the funds to have more flexibility to the minor if he/she didn't go to college and your mother's answer was yes.