Some Advantages Of Choosing A 529 Plan Over A Ugma Account
The 529 Plan for college education has more advantages than the custodial accounts such as UGMA (Uniform Gifts To Minors Act). One of the best advantages of this plan is that a withdraw can be made without the burden of having to pay income tax. However, the money must be spent for educational purposes in order to take advantage of the tax–free law. Although one disadvantage of the 529 plan is the fact that a risk is being taken with funds because the worth of that account actually is dependent upon the market flow, there are still great advantages to be had. Other advantages include the fact that, as a parent, a section 529 plan will give you control over the account, whereas, with a UGMA you lose control over the fund as soon as your child has reached the age of majority. The majority age is 18 in most states with the exception of Alabama and Nebraska which is 19. The New York, Puerto Rico, Mississippi, and Indiana age of majority is 21 years old. With the 529 Plan control is kept by the contributor until the time the funds are distributed for the educational purpose for which they were intended. Without a plan such as the UGMA the child can use the money for any purpose after they reach the age of majority. With the UGMA account the age at which a minor can take control over their custodial account is called the age of termination. The UGMA trust termination age and the age of majority are not necessarily the same. However, comparisons show that in most of the United States including New York, California, Virginia, and Florida, to name a few, the majority age and UGMA trust termination age are the same. Some people are so impressed by the advantages of a Section 529 Plan over a custodial plan that they are considering closing out their UGMA accounts and transferring funds. However, first they must pay all taxes owed on any gains in the UMGA account and have cash from the account transferred to their new Section 529 Plan. After this, they won’t have to pay anymore tax money on gains. The reason that the UMGA account assets must be sold before a transfer is made is because only cash is accepted into the 529 Plan. |