Parent, not the child, controls 529 plan


Dear Joe,

I am turning 20 in August, live in New Jersey and, according to my mother, have a 529 plan through American Funds. For my own mental health, I need to know if there is any way I can take control over this fund, if I don't agree with how my father is handling it.

-- Lisa

Dear Lisa,

You may not want to hear this, but 529 plans are designed more for the mental health of the parent than of the student. Being named the account beneficiary gives you no rights to the money and no say in how it is invested, regardless of your age or your school needs.

If your father is the account owner, then he's the one that stays in control of it. He chooses which investment option to use and decides when and for what purpose to withdraw funds. He can even take the money back for himself, although any earnings withdrawn for nonqualifying purposes become subject to income tax and a 10-percent penalty.

If your father decides not to share specifics with you, the only time you'll know something has happened with the 529 plan is when either you or your school receives a distribution.

Of course, it seems only fair that he let you in on his intentions for using the 529 account. After all, you need to make important financial decisions concerning your college education, including whether to apply for student loans and whether to look for a job while in school. And if anyone else has opened a 529 account for you -- your mother, a grandparent or even you -- the use of those funds must be coordinated to ensure tax-free treatment.

If you are applying for financial aid from the federal government or from the school, you may need to report the value of the 529 account on the aid application, depending on your parent's marital status. This might provide you with a good opening to ask your father about how the account is being handled. Otherwise, you'll just have to be satisfied with his judgment.

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