What is the advantage of the 529 Plan over the Uniform Gift to Minors Act (UGMA) or UTMA?
Control, tax treatment, and impact on financial aid are key advantages. You may intend for the monies that you have placed in a UGMA account be used for higher education, but the control of this account transfers to the beneficiary when that child reaches legal age. If he/she wishes to use those monies to follow a surfboard’s summons into the sunset, you have no legal control – the funds are then controlled by the would-be student, now a legal adult. With a 529 account the ownership does not automatically change and the owner is always in control. Contributions to a 529 may be deductible for state income tax purposes. Account earnings in 529 Plans grow tax-free and may be withdrawn free of federal and state income tax treatment when used for qualified education expenses. UGMA accounts do not receive that favorable tax treatment. There is no possible deduction against state income tax liability for contributions to an UGMA and withdrawals aren’t tax-free. Investment income above $850 wi
