A 529 plan is an investment tool designed to save and invest money for future college expenses. There are a number of reasons that a person may want to have co-owners for a 529 plan, which are generally set up by parents or grandparents. However, this option is not available for all plans. Before choosing a 529 plan that allows co-owners, a person should consider the advantages and disadvantages of various plans.
529 Ownership Basics
A 529 plan allows a person to save for future higher education costs for a child. These plans offer a variety of investment choices to grow the savings in the plan. A plan owner provides contributions to the account. Some plans also allow contributions from others, as well as choices about the management style and how the plan invests the money. The owner also chooses the beneficiary of the 529 plan.
Some 529 plans allow co-owners, often referred to as joint owners, but the majority of plans do not. Many plans that do allow joint owners restrict the owners to spouses or parents of the beneficiary. There are numerous books and websites that provide information on 529 plans and can help a person find plans that allow joint owners. The fees and potential tax savings of contributions of some plans may outweigh the benefits of using a plan that allows joint owners, but this is something owners must decide for themselves.
Most 529 plans allow an account owner to name a secondary owner, also referred to as a contingent owner or successor. A secondary owner only controls the account in the event of the primary owner’s death or incapacitation. This may be a good option for those who want to control a plan without sharing the decision-making responsibility but want to ensure that a responsible person will oversee the plan in case of death. Another option available on many plans is the ability to transfer the ownership of the plan. For example, a grandparent concerned about his health in coming years may decide to transfer ownership to the parent of the beneficiary, avoiding complications if the grandparent becomes unable to make decisions regarding the 529 plan.
One of the primary reasons an owner may want to consider naming a joint owner or secondary owner is in the event that the owner dies. With the death of the owner, if there is neither a joint or secondary owner, the money may be transferred to the beneficiary or into the decedent’s estate. Transferring ownership to the beneficiary could result in the beneficiary using the money for something other than paying for a higher education. Although unlikely in most situations, money from a 529 plan that passes into a decedent’s estate may end up equally divided among all of the decedent’s heirs and not just go to the intended beneficiary.
- Bankrate.com; Selecting a 529 Plan; Joseph Hurley, CPA; March 2005
- Morningstar Advisor; College Planning Q&A: 529s and Divorce; Susan T. Bart; December 2007
- Savingforcollege.com; Choosing a Successor Account Owner; Joe Hurley; November 2006
- "Kiplinger's Personal Finance"; 529 Plan FAQs; Cameron Huddleston and Kimberly Lankford; July 2010