Divorcing spouses work through many important issues involving the future of their children. You and your ex might worry about how to finance the college education of your child. Divorce could make this challenging, but a 529 plan might be the answer.
A 529 plan is a tax-free account that you and your spouse can contribute money for the purpose of paying for college for your child. With this account, you can save money without incurring taxes, assuming the money goes to pay for qualified education costs.
Gathering a pool of investors
Dividing your household into two separate ones could impact how much money you put away for your child. However, CNBC explains that multiple parties may contribute to a 529 plan. Your relatives and the family members of your spouse could build up the account funds. This may also give you and your ex time to build up your respective incomes and contribute more money later on.
Factor a 529 plan into a settlement
It is important to consider a 529 plan as early as possible in divorce. The reason is that one parent usually owns the plan, and the owner can make multiple changes in the account, such as changing who owns the plan or who benefits from it. Also, the owner could withdraw money from the account without the consent of the other parent.
Such issues might not be a problem for parents who trust each other. Still, it is possible to build checks and balances into a divorce settlement, such as allowing both parents to oversee the plan. Sometimes each parent maintains a separate 529 plan. Given the variety of options available, you and your spouse could find a way to help your child attain a college education.