529 savings plans are increasingly popular investment vehicles for parents that want to save money for their children's future higher education. These versatile yet straightforward investment plans provide families with measured investment gains protected from federal income taxes. With more parents considering 529 savings plans, a common question is if there can be a joint account holder.
The answer is usually no. A majority of 529 savings plans do not permit joint account holders, and, in the rare instances they do, the restrictions are significant. Fortunately, there are alternative ways for parents to pay for their children’s college tuition by utilizing a 529 plan. The college education savings professionals at Sootchy are well-versed in plan requirements and restrictions and can walk you through everything you need to know about 529 plans.
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Restrictions on Joint Account Ownership of 529 Savings Plan
Many states do not allow joint account ownership of 529 savings plans. For those that do, joint ownership may only be extended to spouses or the beneficiary's parents. Even if joint ownership is permitted, the tax savings and fees of a 529 plan with sole ownership generally make more sense financially. Regardless, you must choose a 529 plan that fits your needs while also planning for the unforeseen. Here is a list of states that permit joint ownership of a 529 savings plan:
- Arizona
- Kansas
- Montana
- South Carolina
It should be noted that joint ownership may be only eligible for specific 529 plans offered by each of those states. It is also essential to consider that when two parents open a 529 college fund for their child or baby, only one is named the account holder. In other words, while both parents are contributing funds to the 529 savings plan, only one of them has complete control over the funds within the account. Should parents funding a 529 plan for their children get divorced, the issue of who retains control over the funds within the account can be disputed. Potential legal headaches such as these can be mitigated by each parent opening a separate 529 savings plan account for their children.
It is also wise to consider naming a successor owner for the 529 account. A successor owner is an individual that assumes all legal rights to the 529 account should the sole owner die or become legally incapacitated. In other words, the successor owner will retain the right to request a refund for all the money held in the 529. Additionally, the successor owner can change the beneficiary of the 529 plan. Therefore, instead of seeking joint account ownership of a 529 plan, it might make more sense for one spouse to retain sole ownership and the other to be named successor owner. Regardless of who is named, it is vital that any successor owner named be one that the account holder trusts will carry out their wishes.
At Sootchy, we understand that applying for a 529 savings plan can be a complex process, particularly when considering serious, unforeseen situations. Our app and our experts make this process as easy as possible.
The Benefits of Opening Separate 529 Savings Plans Instead of Joint Account Ownership
Parents are not the only ones who can open separate 529 plans. In fact, several relatives, should they want to contribute to saving for future higher education costs, can open multiple 529 plans for the same beneficiary. In other words, you can lessen the financial burden of tuition costs by spreading out the investment across family relatives. That means that grandparents are permitted to open and contribute to a different 529 savings plan for their grandchildren. By doing this, the investment in your children's education is diversified. This is because 529 plans are available in different financial packages, thereby reducing the investment's already low risk.
It is important to consider opening 529 plans in different states. Doing so will allow you to invest and contribute more toward your children's higher education. For instance, most states cap their 529 savings account maximum balance at a few hundred thousand dollars. An example - the maximum 529 contribution in Utah is $500,000. While that might seem like quite a bit of money, the rising cost of education expenses is not to be underestimated. Because states cap their maximum balances and contributions, it is wise to open 529 plans in different states. If you and your spouse both open accounts in other states, you could conceivably double the overall amount contributed to the 529. Let's say your 529 savings plan balance is already at the state maximum of $200,000. If you were to open a 529 savings plan in a different state with a $300,000 cap, you could even more than double your investment, thereby bringing your total 529 balance to $500,000.
It should be noted that the tax advantages of the 529 savings plan would still apply even if different relatives opened different accounts in other states. As long as the funds that are withdrawn are used for, as the Securities and Exchange Commission calls them, "qualified higher education expenses." Fortunately, our savings experts at Sootchy can break down precisely what those expenses are and how to best save for them. We understand the financial burden of higher education, which is why we believe properly administered 529 savings plans are crucial to both potential beneficiaries and contributors.
Download The Sootchy App To Start Saving for College
Whether you are considering joint ownership of a 529 savings plan or alternatives, it is crucial to get started as early as possible. Compound interest can yield dramatic returns over time, and college is not getting any cheaper. Download our app to start building a college fund today.
Sources:
https://www.sec.gov/reportspubs/investor-publications/investorpubsintro529htm.html
