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Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 725
Experience:  Certified Public Accountant
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This is a question regarding FAFSA and moving money from a

Customer Question

This is a question regarding FAFSA and moving money from a custodial account to a 529 account
JA: The Accountant will know how to help. Please tell me more, so we can help you best.
Customer: I need to file a FAFSA before November. I have about $35K in a custodial account (child's name). Can I move it to a 529 account so that it is not subject to the EFC rate of 50%?
JA: Is there anything else important you think the Accountant should know?
Customer: child is 17 years old
Submitted: 19 days ago.
Category: Finance
Customer: replied 19 days ago.
Please advise what the EFC rate will be once the funds have been moved from the custodial account to the 529. Are there any other ramifications?
Customer: replied 19 days ago.
Is there any limit on how much I can contribute to a 529 in one year without penalty?
Expert:  Mark Taylor replied 19 days ago.

Hi, my name is Mark. I will be happy to help you with your questions. The custodial account is subject to EFC at a rate of 20%. Any earnings would be subject to the 50% rate. There are income protection allowances that may limit the amount of earnings subject to the 50% rate.

If the funds are moved to a 529 plan, the 529 plan would be considered an asset of the parents and subject to a 5.64 % EFC rate. Is there are any appreciation that has not been taxed this would be income for your child and may be subject to the 50% rate.

The amount that you contribute to a 529 plan is limited by the state. A contribution in the student's name would be considered a gift. Each year an individual can make a gift of $14,000 to another individual without trigger a gift tax situation. So if you are married you and your husband could contribute $14,000 each. If you contribute more than this you would need to file a gift tax return. It would be unlikely that this would create a taxable event. Currently, the lifetime exemption is 5.45 million. This means that you would need to make taxable gifts in excess of this amount before you would be required to pay taxes.

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