After reading about Uniform Transfer to Minors Act (UTMA) accounts, I regret opening one for my 13-year-old daughter. As I understand it, her mutual fund UTMA will reduce her financial aid by a greater amount than if the money was in my name or in a 529 plan. My daughter has about $3,000 in the account. How can I transfer it into a 529 plan without being penalized on taxes? – Harry

You understood correctly, for the most part: Under the federal methodology, a formula many schools use to determine financial aid, an UTMA account (or its near-equivalent, an UGMA) is considered a child's asset. As a result, money in the account reduces financial aid eligibility almost four times as much as it would if the money were in the parents' hands. In your case, the $3,000 your daughter has in her UTMA would reduce her aid by $600 in her first year of receiving financial aid, versus $168 if the money were under your name. So it may be prudent to shift the money into a 529 plan, which is considered a parental asset.

Not every college uses the federal methodology to calculate aid, however. Some private institutions use what's known as the "institutional methodology," which provides the option of weighting parents' and children's assets equally. In that case, putting your daughter's UTMA account money into a 529 plan wouldn't increase her aid.

Bill Cummings, founder of Tampa, Fla.-based advisory firm Cummings Financial Organization, says transferring the money to a 529 plan won't generate much of a tax hit unless more than $1,900 of the assets in the account came from investment gains. You can't transfer the mutual funds in the UTMA account directly to a 529 plan; instead, you'll have to sell the investments and fund the 529 with the proceeds. That sale may generate taxable capital gains. But the first $950 in gains is tax-free, and the next $950 is taxed at your daughter's (presumably low) capital gains rate. Any unearned income over $1,900 is taxed at the parent's marginal tax rate — but that's not likely to be an issue unless you've been extremely fortunate in the markets.

— Marc Mewshaw

Got a question for the Help Desk? Send it to helpdesk@cnnmoney.com.