529s really started to gain popularity after 2001, when qualified distributions became tax-free. Up until then, UTMA accounts were a more popular option to save on behalf of a child, and they have remained widely used. However, as financial aid calculations and rules have become more codified, the UTMA has become far less beneficial as a college savings tool. That’s because an UTMA is treated as a student asset, meaning it gets no asset protection allowance and is assessed at 20% of its value; a 529, on the other hand, is treated as a parent asset and thus is assessed at 5.64% of its value. Plus, since an UTMA doesn’t receive preferential tax treatment, selling assets to rebalance or pay for college will trigger student income.

Have no fear: your UTMA can be converted to a 529 and enjoy the same beneficial treatment. Your best bet for doing so is to contact your preferred 529 provider (whether your own state’s plan or another) and work with them to set up the rollover correctly because it’s not simply a matter of cashing out the UTMA and opening a 529.

Here is something you do need to consider: Assuming the UTMA has been invested in stocks or stock mutual funds, it likely has some capital gains. Selling the investments in the UTMA– which is required for the transfer– will trigger income for the student for FAFSA purposes and possibly capital gains taxes. If you are in a FAFSA income year (your student is currently somewhere between a high school junior and a college sophomore) and don’t manage the sale and transfer properly, you could end up shooting yourself in the foot for aid purposes.

How might that happen? Remember that students get an income protection allowance of $6,660 this year. Suppose the student has an UTMA account that has grown from an initial contribution of $10,000 to a current value of $30,000. As an UTMA, that account would increase the student’s EFC by $6,000 (20% of $30,000). As a 529, it would only increase EFC by $1,692, a reduction of about $4,300. However, selling the entire account would move the gain into the income column for the student. Let’s say the student earned $1,000 from a summer job, then had a $20,000 realized gain in the UTMA account. That means the student’s income this year would be $21,000 for FAFSA purposes. Less the income protection allowance, they’d have $14,340 in income to be assessed at 50%. That would increase their EFC by $7,170. Of course, that wouldn’t hit for two more years but would provide a nasty surprise.

All by way of saying: There are many benefits to converting an UTMA to a 529, including better treatment in aid formulas and ability to rebalance to risk- and age-appropriate investments with no tax or aid consequences. However, families in the FAFSA income years need to be cognizant of the formula and plan around it to maximize the benefits and minimize the downsides of converting.