CSG Law Alert: Time for College? Here are Two Cents on 529s – and Divorce
Not every state requires a parental contribution to college, but for those states that do, or for those parents (or even grandparents) who want to fund their children’s educational endeavors, 529s can be an excellent way to save for and fund educations.
What happens to the 529s when parents are getting divorced? Below are some frequently asked questions and considerations that often factor into the way in which we may approach a negotiation.
The 529 account itself does not actually belong to a child. Although a 529 may be earmarked for a specific child, it belongs, almost by default, to a titled party. For this reason, parties should plan what, if anything, should happen to the excess after a child completes his/her education(s).
Must a 529 be used for college? No! While there are limitations and certain restrictions, 529s can be used for private school expenses.
Must a 529 be used for a specific child? No! While intact families may plan to designate monies for one child, the realities of divorce may find that monies many need to be reallocated among other children in a family.
Can all college expenses be paid from a 529? It depends. Not all expenses that a child may incur throughout the course of his/her education are 529 eligible. While a court may designate, or divorcing parents may agree, that certain expenses that are perfectly reasonable must be paid as part of a child’s college experience, the rules of the 529 itself apply and not all items can be paid from a 529.
For more on this topic consult your family law attorney or financial advisor.