Is it Wise to Postpone Discussing Pre-College and College Expenses Until After Your Divorce?
In many divorces, discussions on pre-college and college expenses often get postponed by attorneys, leaving essential questions unanswered. This delay can lead to confusion and upheaval, particularly for children mapping out their educational paths. But why wait?
In divorce mediation, we stress the significance of tackling these expenses head-on. By doing so, parents can craft a definitive roadmap for their children's educational journey, minimizing the need for future mediation or court interventions.
Deciding on these matters requires deep consideration, often shaped by the precedents set by our parents. We often use their choices as guideposts for our own children's futures. For example, if our parents paid for our four-year college experiences, we may want that for our children. If our parents bought our first car to get to work after college, we may want to do that, too. At the Center for Divorce Resolution, we encourage parents to weigh their needs, wants, and aspirations when saving for their children's future expenses, all while maintaining a balance with emergency and retirement funds.
529 College Savings Plans present a tax-advantaged avenue for saving toward educational expenses. Qualified higher education expenses encompass a spectrum of costs, including tuition, books, and select K-12 expenses. However, figuring out what are qualified expenses can be daunting.
Often times, 529 College Savings Plans were established during the marriage. In college expense planning, these will be used first, after scholarships and grants, and prior to contributions by the parents and student. Any 529 College Savings Plans established after the divorce are considered to by contributions made by that individual parent.
But what exactly falls under the umbrella of a "qualified education expense"?
Tuition and fees: Yes, up to the full amount of college or vocational school tuition and required fees. Limited to $10,000 per year for K-12.
Books and supplies: For college expenses only.
Computers, software, and internet access: For college expenses only.
Room and board: For college expenses only, provided the student is enrolled at least half-time.
Special needs equipment: For college expenses only.
Most parents are surprised that transportation and travel costs, health insurance, college application and testing and tutoring fees, and extracurricular activities (Fraternities, Sororities, Clubs) at college are not covered by their 529 College Savings Plan. And what if your student wants to live at home during college? Again, this should be taken into consideration while deciding on how to pay for college expenses.
While you can withdraw funds from a 529 plan for any reason, utilizing them for non-qualified expenses incurs penalties and taxes. Parents utilizing 529 plans for college expenses may also be eligible for additional tax benefits through the American Opportunity Tax Credit (AOTC) or Lifetime Learning Tax Credit (LLTC).
Our team stands ready to navigate you through this labyrinth of decisions, ensuring your choices align with your family's unique needs. Proactive planning is paramount. Don't allow financial uncertainties to derail your child's educational journey.
Reach out today to schedule a consultation. Together, we'll sketch out a path for your children's educational future, offering tailored guidance every step of the way.