So are you saying the fund is starting to have earned income above $900? Or are you referring to above $1800? Earned income between $900 and $1800 isn't too bad as it will be taxed at the child's tax rate -- which would be really low.
I'm assuming that you might be interested in transferring some of the money rather than all of it because I believe that if you transfer all of it to a 529 then it needs to be used for college. Whereas if you keep some of it then you can use it for the child's benefit other than college -- e.g. expensive private ballet lessons, summer language-immersion trip to Europe, etc.
I'm not cognizant of all the details and my understanding is fuzzy on this -- but I *believe* that a "transfer" of assets from a UTMA account to a 529 is considered a taxable event. The "transfer" in such as case is not like an IRA to IRA transfer or a 401k rollover where it can be a non-taxable event. Since UTMA monies is for the benefit of the owner (child) then a "transfer" just means that you have to take that cash and transfer it to another "account" for the benefit of the owner (child) and in this case a 529 plan.
But this is where things get a little bit complicated because in a 529 plan -- normally you are the owner and the child is the beneficiary. You many have to make the child the owner & beneficiary of the 529 plan depending on state law I believe when transferring UTMA monies to the 529 account. Also -- in a 529 plan, you can normally change the beneficiary anytime but that is not the case for the monies that was moved into the 529 plan from a UTMA account because monies from the UTMA account was legally intended for a specific owner/child and so you simply can't change the beneficiary on a 529 for those monies. So there appears to be some restrictions on money taken from a UTMA account to be deposited into a 529 plan.
Again -- I don't have a complete snapshot picture of all the details but just have a tiny bit of understanding. Check out these 2 links:
http://www.fairmark.com/custacct/529plans.htm
"Summary
Transferring custodial assets to a 529 account doesn't solve the problems associated with ownership of those assets by the child. The change may encourage the child to use the assets for education, but doesn't prevent other use — at least if you plan to comply with the terms of the Uniform Transfers to Minors Act.
The transfer has other consequences. You lose a considerable amount of investment flexibility because of rules that apply to 529 accounts. You gain favorable tax treatment if the account is used for qualifying higher education expenses, but get unfavorable tax treatment if the account is used for any other purpose. Meanwhile you may incur tax cost as a result of making the transfer.
For most people, a 529 account is a better choice for college savings than a custodial account under the Uniform Transfers to Minors Act. That doesn't mean it's necessarily a good idea to switch assets to a 529 account once a custodial account has been created. Overall this is a close question, and the wisdom of making the change will depend on your own situation and preferences. Some people will find it makes more sense to leave existing money in the custodial account and place any additional savings in a 529 account or Coverdell account."
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http://www.savingforcollege.com/intro_to_529s/index.php?general_faq_id=21
"Can I transfer my child's existing Uniform Transfers to Minors Act (UTMA) account into a 529 plan?
Many, if not all, 529 plans accept funds coming from an existing UTMA or UGMA. However, because these funds belong to the minor under a custodial arrangement, any withdrawals from the UTMA/529 account must be for the benefit of that minor only. Program rules and state laws will generally prevent you from making any beneficiary changes to the UTMA/529 account, and the minor will assume direct ownership of the account when the custodianship terminates at the age of majority. Parents who are nervous about a child getting their hands on money in an UTMA account, and who may be looking to "regain control" of the money by transferring the funds to a 529 account, may be disappointed to learn that they are not able to accomplish that objective without violating state laws (see your attorney). Still, the placement of UTMA funds in a 529 account can provide all the tax and investment benefits associated with 529 plans. Remember, however, that a 529 plan can only accept cash and so any appreciated securities in the UTMA would first have to be sold and capital gains would be reportable on the minor's tax return."
