I have been investing $50 a month into a UTMA for my best-friends son. He is not a blood relative of mine. There is about $10k in the account now. I explicitly chose a UTMA instead of a 529 because of the flexibility to pay for summer camps, extra circulars, etc. before college. UTMAs also offered better investment funds, 529s were too conservative for my preference.

He is now 16 and starting to think about college.

What should I do with his UTMA to ensure that:

  • The money is available to the child
  • His eligibility for financial aid is maximized
  • I do not run into any conflicts with other investments or gifts his family may make or may have made

As I understand it, the rules for UTMAs are fairly loose, the main requirement being that the money is used for the childs benefit.

The options I am aware of are:

  • roll it into a 529 - I'd still pay tax. I also do not know what a 529 does for his eligibility for financial aid
  • liquidate the UTMA - I can keep real cash or simply earmark a different account for the child. I am leery of this because I intentionally do not want the childs money commingled with my other investments and assets. I also don't want to hand an 18 year old ten grand nor do I want to be uncle-moneybags.

What can I do with this money to ensure that the child gets the money I set aside for him and that his financial aid eligibility is maximized?

  • 2
    Which state is this UTMA in? Are you the custodian, or is it the child's parent?
    – Ben Miller
    Jan 13, 2023 at 21:18
  • 1
    AFAIK UTMA balance is not yours, it's the child's. You can't take it back, it's a gift already given.
    – littleadv
    Jan 13, 2023 at 21:47
  • @BenMiller-RememberMonica - I am in Kentucky. The child is an Ohio resident
    – Freiheit
    Jan 17, 2023 at 15:12
  • And I am the custodian.
    – Freiheit
    Jan 17, 2023 at 15:13

2 Answers 2


The T in UTMA stands for Transfer; as littleadv's comment points out, you have transferred ownership of the assets in the UTMA account to the child (now adolescent) and you cannot "take it back". "Closing" the UTMA account is not permissible; what you could do is transfer the assets from one UTMA account to another UTMA account whose owner is again the same minor but possibly a different custodian.

One particular point is that since the assets in the UTMA account are the property of the minor (the minor's SSN is associated with the account), this can affect eligibility for financial aid and scholarships and the like.

You say "I also don't want to hand an 18 year old ten grand" but there is little else you can do (legally), unless you move to a State that has amended the UTMA rules. For example, Investopedia says that Florida passed a law allowing the transfer of the assets to be delayed till age 25 if the custodian so chooses.


Dilip already addressed liquidating the account, but you also mentioned rolling into a 529. Note that a 529 (not owned by a parent/guardian) does not count towards assets on the FAFSA. However, any withdrawal is counted at 50% for the next year's income.

See this:

  • Assets aren’t counted on the Free Application for Federal Student Aid (FAFSA) Assets held in a 529 account owned by a grandparent,
    other relative or anyone else besides a dependent student or one of
    their parents will have no effect on the student’s FAFSA.
  • How are distributions treated? When a grandparent withdraws the funds to pay for their grandchild’s college expenses, it will be
    counted as student income on the FAFSA. Student income is assessed at 50%, which means if a grandparent pays $5,000 of college costs it
    would reduce the student’s eligibility for aid by $2,500. Remember,
    higher EFC means less financial aid. One strategy to avoid this
    problem: if the student will graduate in four years, they can wait to contribute until after the student’s third semester of college, since the FAFSA looks at income from two years prior.
  • Rolling a UTMA account into a 529 plan has its own legal issues in that the property of the minor is being converted into an asset controlled by someone else (Uncle moneybags, in the OP's terminology). The beneficiary of a 529 plan can be changed by the donor, i.e. the student cannot count on the money being there when needed. In short, the student's assets (UTMA account) are effectively no longer his once they are put into the 529 plan: legal issues! A lawyer better be consulted first.... Jan 18, 2023 at 3:15
  • @DilipSarwate Yes, it does seem complicated. But I believe the assets are still owned by the beneficiary. Some quick Googling shows that there is a special "UTMA 529" account that must be used in that case. I would consult with a professional (lawyer/accountant) to be sure.
    – Nosjack
    Jan 18, 2023 at 14:26

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