|Can an UTMA/UGMA account reduce my child's financial aid for college?|
It can, but in the same way that any other asset held by your child can. An UTMA/UGMA account is a custodial account established at a financial institution for a minor child and managed by a parent or other designated adult custodian.
Because the account is held in your child's name, it is considered your child's asset. The federal government's financial aid formula treats your child's assets differently than your assets. Under the current federal formula, children must contribute 20% of their assets to college costs each year before becoming eligible for financial aid, while parents must contribute only 5.6% of their assets.
For example, $10,000 in your child's UTMA/UGMA account would result in a $2,000 required contribution from your child. The same $10,000 in your bank account would result in a $560 required contribution from you.
As a result of this formula, any asset that your child holds, including an UTMA/UGMA account, will always translate into a higher monetary contribution to college costs than if the same asset were in your hands. It follows that the more money your family is required to pay up front for college costs, the less financial aid your child will be eligible for.