Q When my son was born 16 years ago, my father set up a college account for him. He subsequently has created accounts for my other two children as well. These accounts are Uniform Gift to Minors accounts with me as the guardian. My husband and I also have Minnesota 529 accounts for each child. I'm wondering if the UGMAs can be transferred to the 529 accounts in order to take advantage of the tax benefits. I understand that the money can only be used to benefit the child. I also know that the money transfers to them at 18. Or is it 21?


A Yes, in most cases you can transfer a Uniform Transfer to Minors Act (UTMA) account or a Uniform Gift to Minors Act (UGMA) into a state-sponsored 529 college savings plan. The Minnesota 529 college savings plan allows it. Remember, 529 plans only accept cash, so you'll have to sell the securities in the UGMA account. Your child will pay taxes on any gain. I'd do the calculations to make sure you come out ahead financially on a transfer.

It's clear that you already understand this, but with an UTMA or UGMA account the money remains the child's. Period. Parents can't regain control of the money by transferring into a 529 plan. Withdrawals from the college savings plan must be for the child's benefit, and you can't change the beneficiary on the 529, either. Put it this way: If you transfer money from an UTMA or UGMA into a 529 plan the savings belong to the child at age of majority (21 in Minnesota). If your child wants to take the 529 money and start an online social networking site, he or she can. You may want your student to tap into the 529 to pay for college, but you can't insist on it. Of course, if your student does withdraw it to start a business or explore the Rocky Mountains, he or she will pay a 10 percent penalty and ordinary income taxes on the withdrawal.

If your student taps into the account for qualified educational expenses, all the tax and investment benefits of a 529 apply. Starting with the 2009-10 school year, the account will be treated as a parental asset in the financial aid formula even though the money belongs to the student. That means the expected contribution will be set at the 5.64 percent parental rate rather than the 20 percent student rate.

Chris Farrell is economics editor for American Public Media's "Marketplace Money" program. Send questions to: cfarrell@mpr.org, or to kaching@startribune.com; put "Your Money" in the subject line.