Should I use 529 plan or UTMA for my grandchild’s college?


Q. I want to begin an account with $1,000 or $2,000 for my only grandchild, who just turned a year old. I was planning on a custodial account but now I’m wondering if a 529 plan might be a better choice, especially because the FAFSA doesn’t include it. I’m confused, though, about how income from the 529 could affect the FAFSA.
— Grandma

A. Your grandchild is very lucky.

College tuition costs just keep going up, and anything that you save today will be a great help.

There are several reasons why a 529 plan my be a better choice, said Bill Houck, a certified financial planner with Modera Wealth Management in Westwood.

He said the 529 plan counts less on the FASFA in general, thus might lead to higher financial aid. Income plays the largest role.

“An UTMA becomes the child’s asset without restriction at age of majority and counts more on the FASFA,” he said.

The 529 plan also gives more options, such as moving unused dollars to a Roth for the beneficiary, this while UTMAs can have ongoing tax compliance, he said.

“529 plans offer glidepath investments that become more conservative as you approach the goal, often are low-cost in nature, easy to administer/manage and easy to add contributions,” he said.

As you noted, the distribution of the 529 plan might play a role in a multiple year FASFA aid calculation, so depending on the amount saved, you might want to use the 529 in the later college years, Houck said.

“The bottom line? Consider starting with the 529 and contribute ongoing to the 529,” he said. “Check in with a financial planner along the way since the rules and strategies might change.”

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This story was originally published on April 5, 2023. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.