Married individuals may open a joint 529 plan as part of the planning process for their child’s college education. Some plans, such as Nevada’s Wealthfront 529 College Savings Plan, do not permit joint owners, while other state plans may allow joint ownership. Of the plans that do allow joint owners, many plans limit joint ownership to parents of the beneficiary or a married couple.
Considerations For 529 Plans With Joint Owners
Separation and Divorce
If you choose to open a joint 529 plan with your spouse there are steps you can take to preserve the account in the event of a separation or divorce. Many individuals assume that the child (beneficiary) owns account funds, but if a parent is the account holder, then the money in the account is a parental asset. You have several options after a separation or divorce, but the plan should be clearly outlined in a prenuptial agreement or other document created simultaneously with the 529 plan. The following are a few options in the event of a divorce or separation:
Split the account. Each parent can split the funds in the 529 account to make two separate accounts.
Transfer to one parent. Ownership of the account can be transferred to one parent. You can file “interested party statements” to ensure the account funds are being used appropriately.
Continue sharing and contributing. If the plan permits, you may choose to continue contributing to and sharing the account. If this is the case, be sure to outline restrictions for withdrawing funds.
For joint and sole owners of 529 plans, it’s also important to name a successor owner in the event of death or other circumstances that prevent the owner from managing the account. If the plan is a joint plan, you can make the successor owner the beneficiary or a grandparent. As an alternative to joint ownership, you may consider designating one parent as the account holder and the other a successor owner.
The Benefits of Joint Ownership on a 529 Account
While there are complications and limitations to joint ownership, there are also benefits. For example, in the event of a divorce, a parent may have trouble controlling assets of a 529 account that is not in their name, even if they’ve contributed to it. The owner can withdraw funds without the consent of the spouse if their name alone is on the account. With joint ownership this problem can be eliminated.
The Benefit of Sole Ownership on a 529 Account
There are some benefits to having one parent or individual serve as the 529 plan account holder. In the event of a divorce, explaining each parents' assets on federal financial aid forms, such as the FAFSA and CSS Profile can get tricky. While no one wants to think they would get divorced, having one person serve as the account owner keeps things simple.
Before deciding to serve as co-owners of a joint account, contact the plan administrator to ensure it’s a possibility. Regardless of whether you choose to be joint or sole owners, it’s important to outline what should happen to the account in the event of divorce, separation, or death. Drafting a plan in the case of joint or sole ownership is fair to both parents.