What bwilk is referring to is something we here call the "UTMA spend-down." Basically, if you want to remove the UTMA "taint" when opening a 529 with former taxable UTMA money, you essentially reimburse yourself for stuff you spent on your child beyond the requisite food, clothing and shelter (such as private school, camp, lessons, braces, etc.). Just don't be overly aggressive about this and only "take back" whatever you can justify as actual legitimate past expenses.
Then, you take this money and put it into a regular (non-UTMA) 529 for the child. BUT, this is now deemed yet another gift from you to the child, so be aware of how much you are gifting and when. In your case, if you do this in one tax year with the full $18,000, you are over the $11,000. But, do not despair--if you are married, your spouse can participate in gift splitting, so each of you has thus gifted $9,000--no gift tax here, but each parent is now limited to an additional $2,000 each in further gifts for the same tax year. Or, you can elect 5-year averaging, so the $18,000 gift given by one parent is recorded as gifts of $3,600 per year for the next five years from said parent. Again, this now flies under the gift tax radar screen, but does reduce your next 5 years' maximum gifts.
[This message has been edited by Dopps (edited February 16, 2004).]