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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.