529 Plan vs Custodial Brokerage Calculator
Tax-free growth with strings attached, or no strings with a tax bill
529 Plan vs Custodial Brokerage Calculator
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yrs
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529 plan: value if used for education
0
tax-free growth, ~5.64% counted for financial aid
Custodial (UTMA/UGMA): post-tax value
0
no spending restriction, ~20% counted for financial aid
529 non-qualified withdrawal penalty
0
10% penalty + tax on earnings, if NOT used for education
In today's money (inflation-adjusted)
0
real purchasing power after assumed inflation
529's tax-free growth has a real string attached
Withdrawals for qualified education expenses are entirely tax-free, but a non-qualified withdrawal (child doesn't go to college, gets a scholarship, etc.) triggers a 10% penalty plus ordinary income tax on the earnings portion — some (not all) of that scholarship-related flexibility is now built into 529 rollover rules.
The financial-aid weighting is a bigger deal than most parents realize
A parent-owned 529 counts at roughly 5.64% toward the FAFSA's Expected Family Contribution, while a custodial UTMA/UGMA account (owned by the CHILD) counts at roughly 20% — on a large balance, this alone can meaningfully reduce financial aid eligibility.
Custodial accounts have zero restrictions, at a tax cost
A UTMA/UGMA account can be spent on literally anything once the child reaches the age of majority (the money becomes legally theirs, for anything they choose) — but growth is taxed under kiddie-tax rules, partly at the child's low rate and partly at the parent's marginal rate above a small threshold.
529 value assumes tax-free growth throughout and a qualifying education-expense withdrawal (the "if used for education" scenario) — the non-qualified-withdrawal penalty box shows what you'd lose if plans change. Custodial account value applies a simplified kiddie-tax estimate (a blended rate approximating gains split between the child's low bracket and the parent's marginal rate above the kiddie-tax threshold) rather than a precise year-by-year kiddie tax calculation. Financial-aid impact percentages (5.64% for parent-owned 529, ~20% for student-owned custodial assets) are standard federal methodology approximations and can vary by school and by year. Not financial or tax advice.