How to Transfer Assets From an UGMA. The appeal of tax advantages may entice you to consider a transfer of assets from an UGMA (Uniform Gift to Minors Act) account to a section 529 plan. As you weigh your options and try to decide which the better choice is, realize such a transfer has consequences and the ownership problems associated with these assets still exist.
Understand that a section 529 plan operates within the boundaries of a tax law set forth by individual states. If the funds pay for higher educational expenses upon withdrawal, the income is tax-free.
Determine if the section 529 plan can accept the UGMA transfer and comprehend the terms involved. Some 529 plans may impose certain restrictions or are unable to accept the transfer. Find out if a tax cost in involved in the occurrence.
Learn how the Uniform Act applies to the transfer of an UGMA account to a section 529 plan. The child or minor is the owner of the 529 account and subject to the protection of the Uniform Act. If the 529 plan allows, designate the account as custodial and show yourself as the owner.
Investigate the consequences of the UGMA transfer to a section 529 plan. Ask yourself if a 529 plan is ideal for your personal situation and preferences. While the clear advantage to a section 529 account is that the money is tax-free, investment flexibility is lost with such a plan and the tax advantages evaporate if the money pays for something other than higher-education expenses.