What Happens to 529 Plans After Divorce?


You and your spouse have dutifully squirreled away money for your kid’s education in a 529 college savings account.

But now that you’re getting a divorce, what happens to all that money?

You might think that nothing changes in a 529 plan because it’s for your child, but these accounts only have one account owner—either you or your spouse. Your child is only the beneficiary. Additionally, the named account owner can make a withdrawal at any time for any reason (subject to taxation and penalties for non-qualified withdrawals). That means a 529 plan is an asset of the account owner. (Some states may treat it differently, however.)

So when you get divorced, you’re going to have to address that asset. If you are trying to make an equitable split, you have a few options here. You can leave the plan in the account owner’s name and compensate for the asset with other assets. You can switch the name on the account to change ownership. Or, you can split the plan into two separate accounts. How you proceed will depend on how you, your spouse and your attorneys agree to handle your divorce decree.

In most states, it’s easy to split the contributions in one 529 plan to create two 529 plans without tax repercussions. This is often done when a family has another child and would like to share the contributions equally. Just make sure the account owner information is changed to the other spouse on one of the 529 accounts.

Regardless of how you handle the 529 plan in the divorce decree, you should not make any further contributions to a 529 plan you do not own. If your spouse’s name remains on your child’s 529 plan, open up a separate plan for your child for future contributions. Otherwise, you would have no way of stopping your ex from taking your contributions out of the account and using them for other purposes. Besides, having your own 529 plan means that you will also have the ability to withdraw funds if needed.


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