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?