Tags: Retirement | 529 plan | divorce | impact

How Will Divorce Impact My 529 Plan?

By    |   Monday, 27 Apr 2015 05:05 PM

The 529 college savings plans can be an important tool to help parents save for future educational expenses. When divorce is inevitable, it is important to consider some key issues regarding your child's 529 plan.

The 529 plan may have the child listed as a beneficiary, but in reality it belongs to the parents. According to Savingforcollege.com, this ownership makes a 529 plan an asset which in turn, needs to be considered and divided just like any other asset when filing for a divorce.

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Parents can easily divide one account into two separate accounts, giving each parent control over a portion of the assets. You can also ask for an interested party statement which keeps you up-to-date on the 529 plan so you can make sure the account stays in tact and no unnecessary withdrawals occur.

An account owner can take money out of the savings plan at any time — not just for college expenses. While huge fines for unqualified withdrawals would apply, a less than responsible parent could easily drain the account which was originally intended for the child.

If there is a concern that one ex-spouse will use the money for something other than college spending, it may be important to be specific in the divorce decree about how that money can be spent.

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It is also wise to stop making any additional contributions to the 529 plan if you no longer own it. You also have the option of opening up a new plan for your child under your ownership. Often times, this works better than dividing the existing account in two.

Divorced parents also need to be very careful when it comes to applying for Financial Aid.

According to Reuters, the most important thing to consider is that any distributions from the account will be considered income against financial aid.

Assets of a non-custodial parent (or grandparent) is not considered when initial financial aid packages are put together, but when they are reviewed, if the 529 plan has been used to pay, it may mean the financial aid package changes.

It is important to talk to a financial planner about how to best consider the timing of the distributions.

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The 529 college savings plans can be an important tool to help parents save for future educational expenses. When divorce is inevitable, it is important to consider some key issues regarding your child's 529 plan.
529 plan, divorce, impact
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2015-05-27
Monday, 27 Apr 2015 05:05 PM
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