Michigan 529 Plan Review - Funding College for Children of Divorced or Separated Parents
Kim Finkle, MBA, Staff Financial Advisor
College costs are soaring, and divorced or separated parents face unique challenges when saving for their child's education. Fortunately, Michigan offers the Michigan Education Savings Program (MESP), a powerful tool to secure your child's future regardless of your marital status.
How the Michigan 529 Plan Benefits Co-parents
The Michigan 529 Plan, like most state-sponsored 529 plans, is a tax-advantaged college savings account. Contributions grow tax-free, and qualified withdrawals used for educational expenses are not taxed by the state. Here's why the MESP is ideal for co-parents:
- No Residency Requirement to Contribute: Both parents can contribute regardless of where they live in the U.S.
- Nationwide Flexibility: Funds can be used at any accredited educational institution, in-state or out-of-state, giving your child maximum college choice.
- Multiple Contribution Options: Each parent can contribute according to their financial situation, as agreed upon in court orders or separate agreements.
Managing a Michigan 529 Plan as Co-parents
There are two main ways divorced or separated parents can manage an MESP for their child:
- Separate Accounts: Each parent can open their own MESP account naming the child as the beneficiary. This allows for independent control over contributions and withdrawals.
- Joint Ownership Not Available: Unlike some states, Michigan doesn't allow joint ownership of 529 plans. However, one parent can be the account owner while the other contributes.
Important Considerations for Co-parents
- Open Communication is Key: Discuss contribution amounts, investment strategies, and beneficiary designations openly with your co-parent to avoid future disputes.
- Legal Agreements: Consider including specific details about the 529 plan in your divorce decree or a separate agreement for clarity.
- Tax Implications: Be aware of tax implications for contributions and withdrawals, especially if one parent contributes more than the other. Consulting a financial advisor can be helpful.
Michigan 529 Plan vs. Other States' 529 Plans
While the Michigan 529 Plan offers significant benefits, comparing it with plans from other states, especially if your child might attend college out-of-state, is prudent. Here's a quick comparison of Michigan with 5 other popular 529 plans, including neighboring states:
| State |
Investment Options |
State Tax Benefit |
Additional Benefits |
| Michigan |
Varied Options |
Up to $5,000 deduction |
None |
| Illinois (Neighbor) |
Vanguard Target-Date Funds |
Up to $3,000 tax credit |
None |
| Ohio (Neighbor) |
Multiple Portfolio Options |
Up to $4,000 tax credit |
Can be used for K-12 private tuition up to $10,000/year |
| California |
Multiple Portfolio Options |
Up to $2,500 tax credit |
Can be used for private K-12 tuition |
| Texas |
Vanguard Target-Date Funds |
No state tax benefit |
Can be used for private K-12 tuition up to $10,000/year |
| Georgia |
Various Investment Options |
Up to $6,000 tax credit |
None |
Alternatives to 529 Plans
While 529 plans offer tax advantages, they may not be the only option for divorced or separated parents saving for their child's education. Here are a few alternatives to consider:
- Custodial Savings Accounts (UTMA/UGMA): These accounts allow you to invest on a minor's behalf, but funds can be used for any purpose, not just education. Earnings may be taxed.
- Savings Accounts: A regular savings account won't offer tax benefits, but it can be a good option for short-term savings goals.
Conclusion
The Michigan 529 Plan empowers divorced or separated parents to build a secure future for their child's education. By understanding the plan's features, comparing it with other options, and considering alternative savings vehicles, you can ensure your child has the financial means to pursue their educational dreams.
Remember, consulting with a financial advisor can help you develop a personalized college savings plan tailored to your specific needs and goals.
529 Plans By State
1. Alaska 529 Plan
2. Alabama 529 Plan
3. Arizona 529 Plan
4. Arkansas 529 Plan
5. California 529 Plan
6. Colorado 529 Plan
7. Connecticut 529 Plan
8. Delaware 529 Plan
9. Florida 529 Plan
10. Georgia 529 Plan
11. Hawaii 529 Plan
12. Idaho 529 Plan
13. Illinois 529 Plan
14. Indiana 529 Plan
15. Iowa 529 Plan
16. Kansas 529 Plan
17. Kentucky 529 Plan
18. Louisiana 529 Plan
19. Maine 529 Plan
20. Maryland 529 Plan
21. Massachusetts 529 Plan
22. Michigan 529 Plan
23. Minnesota 529 Plan
24. Mississippi 529 Plan
25. Missouri 529 Plan
26. Montana 529 Plan
27. Nebraska 529 Plan
28. Nevada 529 Plan
29. New Hampshire 529 Plan
30. New Jersey 529 Plan
31. New Mexico 529 Plan
32. New York 529 Plan
33. North Carolina 529 Plan
34. North Dakota 529 Plan
35. Ohio 529 Plan
36. Oklahoma 529 Plan
37. Oregon 529 Plan
38. Pennsylvania 529 Plan
39. Rhode Island 529 Plan
40. South Carolina 529 Plan
41. South Dakota 529 Plan
42. Tennessee 529 Plan
43. Texas 529 Plan
44. Utah 529 Plan
45. Vermont 529 Plan
46. Virginia 529 Plan
47. Washington 529 Plan
48. West Virginia 529 Plan
49. Wisconsin 529 Plan
50. Wyoming 529 Plan
51. DC 529 Plan
Warning:
This post is neither financial, health, legal, or personal advice nor a substitute for the advice offered by a professional. These are serious matters, and the help of a professional is recommended as it can impact your future.
