3 Things Paralegals Should Know About 529 College Savings Plans

By Jillian L. Sherman, ACP, VCA

It’s time to celebrate!  Across the country, May 29 is recognized as 529 College Savings Day (also known as 529 Day). This initiative raises awareness about the importance of saving for higher education and the tax advantages of 529 plans. Paralegals are essential to so many things, including helping clients understand how their situation impacts or is impacted by a 529 account.  In honor of 529 Day, here are some of the considerations (just 3!?) paralegals should know about 529 accounts offered by Virginia College Savings Plan℠ (Virginia529℠).

1. Virginia529 has four programs: Virginia529 prePAID℠ (prePAID℠), Virginia529 inVEST℠ (inVEST℠), CollegeAmerica®, and CollegeWealth®.  Ownership of an account under any of these four programs is limited to one person or entity.  A natural person may own an account under any one of these programs.  In addition, businesses, trusts, or other fiduciaries can also own an account under inVEST, prePAID, and CollegeAmerica.  However, certain entities cannot own a CollegeWealth® account.  The account owner makes all decisions regarding the account, including whether or not to use the account.  Please review the associated Program Description for details on who can own Virginia529 accounts, what documentation may be required, and what account owners can do.  Other states may have different rules regarding account owners.   The College Savings Plans Network (CSPN) provides links to the websites of the programs available in the U.S. at www.collegesavings.org.
2. Since Virginia529 accounts can only have one account owner, avoid writing into divorce settlements that both parties must be named on the account – we are not able to do this.  The account owner may add another person as an “Authorized Individual,” but that person may only access information and has no control over the account.  Also try to avoid splitting prePAID accounts, since that will require a downgrade and partial refund - which causes the beneficiary (student) to lose tuition benefits and may involve tax penalties for the account owner.  It is also important to remember that Virginia529 will not monitor account activity to ensure compliance with a domestic relations court order regarding that account and is not responsible for the actions of an account owner in contravention to such an order. 
3. If federal and state tax incentives and the gift tax treatment aren’t enough, in May, state college savings plans – 529 Plans – encourage residents to save for college with giveaways, announcements, contests, events, and sometimes even matching and bonus contributions.  Virginia529 is offering incentives for opening inVEST accounts May 15-29, 2014. If you have recommended 529 accounts to your clients, this may encourage them to set up an account and begin saving.  Visit www.Virginia529.com/529Day/ for details.

Of course, customers should obtain all enrollment materials, including each program’s Program Description, by visiting Virginia529.com or by calling 1–888–567–0540, and read them carefully before investing. Your investment may lose value. Prospective participants should seek the advice of a professional concerning any financial, tax, or legal implications related to opening an account. Virginia College Savings Plan (Virginia529) cannot and will not provide legal, financial or tax advice and the information provided on this website should not be construed as such with respect to the consequences for any particular individual as a result of contributions or distributions from a Virginia529 account.

Virginia529 accounts are not deposits or obligations of, or insured or guaranteed by Virginia529, the Commonwealth of Virginia, or any agency or instrumentality thereof. CollegeWealth accounts offer FDIC insurance to the maximum amount allowed by law – currently $250,000 (in conjunction with the value of all other accounts, if any, held at the participating bank by the account owner as determined by that participating bank and by FDIC and other applicable regulations).

For residents of states other than Virginia: your state or the Beneficiary’s state of residence (if different) may sponsor an IRC Section 529 plan that offers state income tax or other benefits not available to you through Virginia529.

Here’s a bonus tip - the $25 application fee is waived on all accounts opened May 15-29, 2014.