Sign up for our FREE Monthly Email Newsletter
In addition to keeping in the financial know, you may be interested in checking your credit score and report.
¹The credit scores provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score and 3-Bureau scores are each based on the Equifax Credit Score model, but calculated using the information in your Equifax, Experian and TransUnion credit files. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.
²The Automatic Fraud Alert feature is made available to consumers by Equifax Information Services LLC and fulfilled on its behalf by Equifax Consumer Services LLC.
³Equifax Credit Report Control™ is only available while you have a current subscription to Equifax Complete Premier. Locking your credit file with Equifax Credit Report Control will prevent access to your Equifax credit file by certain third parties, such as credit grantors or other companies and agencies. Credit Report Control will not prevent access to your credit file at any other credit reporting agency, and will not prevent access to your Equifax credit file by companies like Equifax Personal Solutions which provide you with access to your credit report or credit score or monitor your credit file; Federal, state and local government agencies; companies reviewing your application for employment; companies that have a current account or relationship with you, and collection agencies acting on behalf of those whom you owe; for fraud detection and prevention purposes; and companies that wish to make pre-approved offers of credit or insurance to you. To opt out of such pre-approved offers, visit www.optoutprescreen.com/.
4We will require you to provide your payment information when you sign up and we will immediately charge your card $4.95. After that, we will charge the card $19.95 for each month you continue your subscription. You may cancel at any time; however, we do not provide partial month refunds.
Equifax® is a registered trademark and Equifax Complete™ Premier is a trademark of Equifax, Inc. © 2014, Equifax Inc., Atlanta, Georgia. All rights reserved.
As the cost of college continues to increase, many parents opt to open 529 plans in order to help save for their children’s tuition. These plans, which are operated by a state or educational institution, offer federal and state tax benefits and allow the donor—often a parent—to retain control of the account.
When it’s the parent, not the child, who has control of the funds, the 529 plan is considered a marital asset. This is important to remember in the event of a divorce, when parents will need to specify how the 529 plan will be funded and used. (A 529 plan can only have one owner, even when parents are married.)
The basics of a 529 plan
Unlike traditional and Roth IRAs, which both have an annual contribution limit of $5,500, substantial amounts of money may be deposited into a 529 plan every year—up to five times the annual gift tax exclusion rate. In 2014, that means you can deposit $70,000 (a gift of $14,000 a year or less qualifies for the gift tax exclusion in 2014) without needing to file a gift tax return, provided you elect to spread the gift evenly over five years.
Anyone can contribute to a 529 plan, including either parent, other family members, friends, and even the child him or herself. However, there is a total contribution limit that varies by state. Generally, that limit is $300,000 and up, but the limit may be raised each year to keep up with rising college costs. Once this limit is reached, no more money can be added to the plan.
The 529 plan taken into consideration when a dependent applies for financial aid, whether it is held in the name of the parent or the student.
What happens to a 529 plan if you get divorced?
In the event of a divorce, a 529 plan, which is a marital asset, needs to be considered when you and your partner discuss separating your finances. For example, you may want to split the 529 plan into two separate accounts so you each have control over a share of your child’s college savings. Or, if you are uncomfortable with your partner owning the account, you may want to switch ownership of the account from your partner to you. You may also want to leave the asset in your partner’s name, cease contributions, and open your own 529 plan for your child.
In any case, you may want to include in your divorce decree the specifics of how the 529 plan funds should be used. Regardless of who owns the account, the money in it should remain set aside for the child.
Things can get more complicated if your partner owns the account and wants to withdraw the funds for non-educational use. There are tax implications—whoever withdraws the money for non-qualified use will pay income taxes and a 10 percent tax penalty on the taxable amount of the withdrawal—but it’s the child who really loses because those college funds are gone. If it’s not outlined in the divorce decree how the funds are to be used, you may have no control over your ex withdrawing them.
If your partner retains ownership of the account, consider having yourself designated as the successor owner in the event that he or she dies. If no successor owner is named, the new account owner may have to be decided through probate.
You should also think about what will happen if your child doesn’t want to go to college or trade school. Who will get the money in the account? If the designated beneficiary chooses not to pursue higher education, whoever controls the 529 plan will have the power to confer these funds to someone else by changing the designated beneficiary. This means that if your child doesn’t want to go to college, but a sibling or relative does, the account owner could make that person the beneficiary of the account. The account can even be used to pay for the account owner’s own education.
Overall, 529 plans may be a good way to help provide your child with a future because you can contribute a substantial amount of money each year. But be sure your divorce decree clearly states how the funds should be used.
Eva Rosenberg, EA is the publisher of TaxMama.com ®, where your tax questions are answered. She is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.
The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.