How are custodial accounts considered for college financial aid?


Q. How are custodial accounts handled on the FAFSA since funds are held until the beneficiary reaches age 21 in New Jersey?
— Planning

A. This is a great question.

You always want to keep account ownership in mind if college financial aid is in your future.

There are two applications for financial aid that you need to know about, said Claudia Mott, a certified financial planner with Epona Financial Solutions in Basking Ridge.

There’s the Free Application for Federal Student Aid (FAFSA) and the College Scholarship Service Profile (CSS).

The FAFSA is the more broadly used form while the CSS Profile is required by about 400 institutions nationwide, Mott said.

The two most common custodial accounts are the UGMA and the UTMA.

UGMA, which stands for Uniform Gift to Minors Act, allow a custodian, typically a parent or grandparent, to establish an account that can hold savings and investments, Mott said. Then UTMA, short for Uniform Transfer to Minors Act, allows for ownership of other assets such as real estate, she said.

“Each state has its own rules regarding the age of majority, when the trusts must be terminated and the contents transferred to the beneficiary,” she said. “The age in New Jersey is 21.”

When it comes to the FAFSA, custodial accounts such as UGMA and UTMA are considered assets of the student and assessed at up to 20% of their value, she said. That compares to parental assets, which are assessed at a maximum rate of 5.64%, she said.

On the CSS Profile application, 4 to 5% of parent assets are considered, while 25% of student assets are included in the institutional formula, Mott said.

Email your questions to .

This story was originally published on Nov. 8, 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.