Charlotte, North Carolina (PRWEB) October 24, 2012
Divorcing parents in North Carolina have a lot on their plate. Not only do these parents have to ensure that they are emotionally and physically present for their children during this difficult time, they must also ensure that they are in a position to meet their children’s financial needs for years to come. Depending on the age of the children, their financial needs may vary from diapers and daycare to substantial educational expenses. The stress of meeting the needs of children while managing every other aspect of divorce can sometimes feel overwhelming. Therefore, it is important for divorcing parents in North Carolina to create a plan for their children’s financial future, especially as it relates to higher education. With the help of a family law attorney, parents may devise cost-effective strategies to plan for their children’s college expenses, alleviating many future financial concerns.
As a divorcing parent with children who are college-bound, deciding how to fund their education should be a priority while moving through the divorce process. Prior to reaching a divorce settlement, divorcing parents and their respective attorneys should evaluate all potential options for funding the children’s future education, ensuring that one spouse is not left alone to shoulder the burden at a later date. Many North Carolina parents devise a method of saving to which both parents can adhere, memorializing this method in the Separation Agreement. Although there are many ways to save for children’s education, one method used by many divorcing parents is the North Carolina 529 savings plan. A 529 savings account may be opened for a person of any age, even if the person is a newborn. North Carolina requires a low minimum opening contribution, and does not require account holders to contribute on any set schedule. Divorced parents may create a plan to contribute as much or as little as desired on a schedule that works best for all involved. The beneficiaries of the 529 savings plan may use the money for college expenses, including tuition, fees, room, board, books, and supplies, at virtually any college anywhere.
Using the North Carolina 529 savings plan has many tax advantages. Both parents may qualify for an annual state tax deduction for contributions of up to $2,500 each. Additionally, the account earnings grow free of both federal and state taxes as long as they are used for educational expenses. However, if a withdrawal is made for something other than an educational expense, the earnings portion of the withdrawal is subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. If the children receive a scholarship or appointment to a U.S. military academy, funds totaling the amount of the scholarship or the cost of education may be withdrawn without incurring the 10% federal penalty tax; however, the earnings portion will still be subject to federal and state taxes.
If a 529 savings plan is already established prior to divorce, the assets held in the account may be distributed in the divorce settlement. While these assets may be used in any desired manner, rolling them over to another 529 savings plan and continuing to use them for educational purposes is wise. Rollovers from one 529 savings plan to another are tax-free.
No matter the method used, planning for children’s educational expenses now is an important aspect of the divorce process. It is imperative to ensure protection from the potential burden of substantial educational expenses down the road. Want to get started saving? Talk to your family law attorney about how they can help you plan for this and other potential issues you may face during the divorce process.
Miller Bowles Law is a full-service Charlotte Family Law firm located in the historic district of Dilworth in Charlotte, North Carolina. The attorneys at Miller Bowles Law have over 15 years of combined experience in representing clients in Charlotte family law cases and family law cases in surrounding counties including Union, Gaston, Iredell, and beyond. Our mission, simply stated, is to provide the highest-quality legal representation to our clients so that each feels supported and well-prepared to face the family law court system.