What to do with leftover college fund?

[Magpie]

My parents diligently saved and gave me a college fund, with the understanding that any funds leftover upon graduation would be mine.  The money was put in a mutual fund via a Uniform Gift to a Minor account (not sure of the exact terminology). Thanks to scholarships and graduate assistantships, I was able to finish my undergrad and grad degrees with money leftover in the mutual fund.  Now I'm 35, married with two kids, and DH and I are exploring paths to financial independence.  In all honesty, I've not given this account much thought over the past 10 yearst; it's been considered our "super secret emergency fund" that we have no intentions of spending.  But, in reading all the chatter about this board's love of Vanguard funds, I'm strongly considering moving what I have to VTSAX.  DH and I bring in about $7K monthly after taxes, savings rate of 30%, only debt is a$76k mortgage (27 yrs remaining at 4.625%), and have a net worth around $210k. 

The money I have is with Wells Fargo, STRFX.  Performance has been comparable with VTSAX, but the expenses are 1.13%.  Now I realize how high that is.  Currently there is about $16k in the Wells Fargo fund.  Looking for feedback on the pros and cons of moving the money, and what kind of tax implications we may need to consider.

[viper155]

Roll it over to a Roth IRA if you don't already have one. Vanguard makes it very easy to do....

[beltim]

That kind of account isn't tax advantaged in any way (any more, at least).  Viper, it's not eligible for a rollover to an IRA.  If you sell and buy Vanguard funds, you'll pay capital gains taxes on any capital gains (at your income, probably a 15% tax rate).  If you sell and transfer to Vanguard, you're also looking at account closure fees.  Check out those and any annual fees to see if transferring is worthwhile.

[TomTX]

That annual fee is ridiculous.

I would:

Cash it out of Wells Fargo and take the tax hit as necessary.

Move it to Vanguard. Hopefully you have already funded 2x Roth this year @ Vanguard. If not, use this money to do so.

With that high of a takehome, I'd also strongly consider refinancing to a 15 year mortgage @ ~3%.

[Magpie]

Thanks for the feedback!  We haven't maxed out both Roths this year so that is a good option.  Would it be wise (or a possibility) to put the rest in a tax advantaged account to lessen the capital gains sting?  15% tax on the gains would cost us $1,050.  Ugh.  I completely agree with refinancing to a 15-year mortgage but there's a good chance we will move in the next year or two. 

[MrsOz]

UGMAs terminate at the age if majority (21 depending on the state) so it should just be a taxable account in your individual name. The only tax advantage for UTMA/UGMA accounts is that income can be claimed at the minor's tax rate.

Sorry, you're not going to be able to dump the fund without incurring tax. Write out your goals. Unwind any investments that don't fit and redeploy proceeds for maximum benefit. You'll want to get in the habit of doing this regularly on your road to FI. And get comfortable with the idea that making money means paying taxes at some point. Strategize and plan for it, but don't avoid doing what you know you need to do.

As far as where to deploy the proceeds- IRA or ROTH contributions are great. (Park the remainder until January and fund for 2015 as well if it makes sense for you.)  You could also switch up the investment but keep investing in a taxable account so funds aren't locked up. Or consider paying it forward by starting tax deferred 529 plans for the kiddos -if college funding is on your goal list of goal of course.

[Joel]

Do you have children (or anticipate having children) that you could rollover the benefits to? That's what I would look into doing... I have 529 accounts setup for my niece and nephew in California using ScholarShare, and it appears to be straight forward to change beneficiaries, if needed.