Divorce and 529 accounts
Assisting clients through a divorce can be complicated and challenging for financial advisors. You may have clients with 529 accounts—are you prepared to assist with these often-overlooked assets?
“Even an amicable divorce can cause problems with a child’s college savings plans. Divorce attorneys are not financial aid experts. They may not be aware of all of the potential consequences of divorce on a child’s eligibility for financial aid or the nuances of need-analysis formulas,” wrote Saving for College publisher and VP of Research Mark Kantrowitz at savingforcollege.com.
Certified financial planner Melissa Joy told CNBC in 2018 that “because it is possible to change a 529 account owner or beneficiary, or the funds can be withdrawn, it is important to outline specific plans for those savings in a divorce agreement.”
Other relevant concerns may include the separation of 529 assets, custodial/noncustodial status and remarriage/prenuptial agreements.
The flexibility of my529 accounts can be used to address some of the issues that may arise during a divorce.
Split the account(s).
You have the ability to split up the assets into two or more my529 accounts in accordance with the percentages established in the divorce decree. If only one account exists for each beneficiary, the other parent may open a new account for each beneficiary so that each parent is an account owner, and then divide the funds. In this scenario, each parent would be responsible for their own account on behalf of each beneficiary.
Change account ownership.
In some divorce situations, it may be necessary to change the account ownership. You can do this with a my529 account because federal law allows for ownership changes.
Kantrowitz recommends that “generally, the custodial parent should also be the account owner of the child’s 529 college savings plans.”
The custodial parent as account owner can make a difference for financial aid. A student’s financial aid eligibility can take a greater hit from noncustodial parent 529 assets, whereas custodial parent assets only reduce aid up to 5.64% (Saving for College). This scenario may require a parent to change the ownership of the account to that of their former spouse.
Determine or change successor account owners.
An account owner going through a divorce may also designate a new primary or secondary successor account owner—or possibly change an existing successor account owner. A successor account owner will assume all rights and obligations to the my529 account if the account owner dies. However, the successor is not considered a joint account owner and cannot initiate transactions, sign forms or request information from my529 about the account. The designation, as well as a change or removal, can be completed online or by submitting Form 515.
Set up interested party access.
my529 makes it easy for an account owner to establish interested party/view-only access for statements, contributions and withdrawals. That way, former spouses are able to view transactions and keep track of the progress of the educational savings of their children, whether they are the account owner or not.
my529 can help.
Each client’s individual circumstances will determine how they will approach their 529 assets during a divorce. Though we can’t dispense financial or legal advice, our team can help advisors navigate accounts, provide the proper forms, set up interested party or other levels of Limited Power of Attorney access and answer questions about my529.
Reach out to my529’s Professional Service Team at email@example.com or toll-free at 888.529.1886.
You can also schedule time with us at calendly.com/advisorinfo.