You cannot add money from a custodial account to a non-custodial
529 college savings account for the beneficiary. This is because
the beneficiary is the legal owner of a custodial account and,
therefore, must also be the legal owner of a 529 savings account
created with custodial funds. However, a separate custodial 529
savings account can be opened with the money from a custodial
account.
Cash crunch. Before you make such a move, carefully evaluate the
potential benefit from investing custodial funds in a 529 account.
Remember, only cash can be invested in a 529 savings account.
Thus, any non-cash assets (stocks, bonds, mutual funds) held in
the custodial account would have to be sold and liquidated first.
Capital gains tax might be incurred if the custodial assets have
appreciated.
Taxing matters. You also should consider whether the tax advantages
of a 529 savings account are all that significant, even if the
funds are ultimately used to fund qualified higher education
expenses. To the extent the custodial account is invested in
equities with a low turnover, the recognized income may be quite
modest. Further, after the beneficiary attains age 14, the income
from a custodial account is taxed at the beneficiary
