Search the Library Catalog
Search the Library Website
Search the Internet
About Us My Account Contact Us

529 Account

I just attended a session on paying for college, and the speaker said it would be a good idea to move money from a Uniform Gifts to Minors account in our son’s name to his 529 account, which is considered to be an asset belonging to the parent when the colleges are figuring out our expected family contribution. Can you think of any possible drawbacks to doing this? Thank you!

A:

There is only one potential drawback that I can think of. If the UGMA account holds stocks, mutual funds, or other investments, you will have to sell the investments since 529s can only accept cash.  Depending on the child’s age and income, that would either be taxed at the child’s rate or at your rate due to the kiddie tax rules.

In addition to the 529 being counted as an asset of the parent, it also has other advantages compared to the UGMA. If the money from the 529 is used for qualified higher education expenses, you will owe no tax on any interest or investment gains in that account. And, you don’t have to worry about an irresponsible child using the UGMA funds for something other than education.

According to savingforcollege.com, a 529 plan that is funded with money from an UGMA or UTMA account should be labeled as a “custodial 529” to reflect the fact that you will not be able to change the beneficiary as you would with the usual 529 plan. When you set up the 529, alert the new custodian that the money is coming from an UGMA account.

Teens & Debit Cards

Q:

I have a 13 year old who is asking for a debit card.  Is this a good idea?  Is there a safe and maybe educational way to go about this?

A:

Here are some things to consider.

  • Why does your child want the card? Convenience? To avoid carrying very much cash? Peer pressure? Have a conversation about this, if you haven’t already.
  • Are you considering a debit card connected to your checking account, or a prepaid debit card onto which you would load a specific amount of money? A prepaid card allows you to limit the amount of money the child can spend, but some have numerous, high fees. (See the report from Consumers Union.) A bank debit card will have fewer fees, but puts you at risk of the child spending as much as you have in the account – or more, if you’ve opted “in” for overdraft coverage. Overdraft charges can add up quickly. (See What You Need to Know: New Overdraft Rules for Debit and ATM Cards from the Federal Reserve Bank.)
  • How much does your child already know about debit cards? Simply asking that question may give you insight into how knowledgeable and prepared she is to handle this responsibility.
  • Can you depend on your child to 1) not share the PIN with anyone, and 2) to keep track of the card and let you know immediately if the card is lost or stolen? A lost prepaid card could mean losing any money on the card, unless you cancel it before someone uses it. A bank debit card limits your liability for fraud, but only if reported in a timely manner. Talk with her about the responsibilities that would come with this privilege.
  • If you proceed, decide on ground rules for how, when, and for how much the card will be used.  How will you monitor her spending on the card? If there are overdraft fees, who will pay those? What will be the penalties if she doesn’t follow the ground rules? Laying these guidelines out in advance will help both of you understand the expectations for using the card.

 There are benefits and risks to either type of card, as well as a chance to learn some money management skills. You’ll have to weigh these and decide what is best for your child. If you decide against the card for now, you might agree to revisit the decision in another year or when she has learned or done certain things to indicate she can handle the resonsibility.