Problem: I've been saving for my children's college through regular gifts. Is there a better way?

        Strategy: Gifts to minors might have unforeseen consequences. Instead, look into state-sponsored Section 529 plans.

        John K. Ritter and Jeffrey E. Daniher, financial planners and co-owners of Ritter Daniher Financial Advisory, say that until recently, the use of Uniform Gifts to Minors Act or Uniform Transfers to Minors Act (UGMA/UTMA) accounts for college saving was common.

        These plans are easy to establish and typically take advantage of the child's lower tax rate.

        But custodial accounts can reduce financial aid eligibility. Worse yet, at adulthood the assets become the legal property of the child. (Adulthood comes at 21 for UTMA accounts and 18 for UGMA accounts in Ohio and Indiana; and at 18 for UTMA accounts and 21 for UGMA accounts in Kentucky.)

        While you may think that this money is going to be used for college, the grown-up child can “take the money and run.”

        Consider using Section 529 College Savings Plans instead. These plans allow you to contribute to a state-sponsored trust invested for your beneficiary. The funds grow tax-deferred, and if the money is withdrawn for qualified higher education expenses, the earnings are reported as ordinary income on the student's tax return.

        And if the child decides not to go to college, the money can be transferred to another beneficiary. If that child doesn't go to college, or there are no other beneficiaries, the money can return to you. The earnings incur ordinary income tax and normally a 10 percent penalty. But, you've eliminated the fear that the child could have misused money intended for college.

        Readers: Consider Savvy Strategies as general information only and seek the help of professionals because circumstances might vary.

        Planners: Share your unique strategies with Enquirer readers. Send your Savvy Strategies to Amy Higgins, 312 Elm St., Cincinnati, OH 45202 or e-mail ahiggins@enquirer.com.

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