Saving for Your Child After Separation in the United States

United States · Checked 17 September 2026

Three different ways money can be held

• A parent’s own account: money remains that parent’s property unless a different legal arrangement applies, even if the account is labelled “for the children”.
• A custodial account for a child: an adult manages money that belongs to the child under the applicable account and state rules.
• A 529 plan: an education arrangement with tax benefits for qualifying expenses, controlled by an account owner under the plan’s terms.

The account type affects who can withdraw money, what happens on separation and when a child gains control. It is a more useful starting point than simply deciding how much each parent will contribute.

How a 529 plan works

The account owner manages the plan. The beneficiary is the person whose education it is intended to support. Some programmes prepay tuition; others hold an education-savings account.

Under federal rules, contributions are not deductible from income tax. Earnings can accumulate tax-free, and qualifying education withdrawals can be tax-free. State tax benefits and rules may differ.

An investment-based plan can rise or fall in value. Its fees, available investments and terms are separate questions from the tax rules.

Which education costs can qualify?

The IRS guide includes qualifying college and other eligible postsecondary education expenses, along with certain apprenticeship, credentialing and limited student-loan costs.

From 2026, qualifying kindergarten-through-high-school expenses have a $20,000 annual federal limit across the child’s 529 plans. The listed expenses include more than tuition, but ordinary spending on a child does not automatically qualify.

The tax treatment of a withdrawal depends on the expense and the applicable rules. Receipts and school information help distinguish eligible education spending from other household costs.

An example of why ownership matters

Both parents may contribute to a 529 plan while only one is the account owner. A promise to contribute does not necessarily give the other parent authority to make withdrawals or change the beneficiary.

A separation agreement can address the account, but the provider still operates it under the plan’s terms. The account may also need to be considered in the property settlement.

Questions for a shared savings plan

• Which accounts already exist, and who owns and controls each one?
• Is the aim education, a deposit for adulthood, or expenses that might arise sooner?
• How will contributions and statements be recorded and shared?
• Who will request withdrawals and keep the supporting documents?
• What happens if one parent cannot contribute for a period?
• What do the provider’s rules say about transfers, changes or closing the account?

If the money is used for something else

A withdrawal that does not qualify can create tax consequences, including tax on some earnings and a possible additional tax. There are exceptions and other permitted routes, but they have conditions.

For example, the IRS describes a limited route from a longstanding 529 plan to the beneficiary’s Roth IRA, a retirement account. It has age-of-account, contribution and other limits; it is not unrestricted access to unused education money.

Keeping current bills manageable matters too. A contribution plan can be modest and reviewed as circumstances change. It does not need to promise equal payments from unequal household budgets.

• IRS: 529 contributions, qualifying expenses and withdrawals

This guide explains general rules and services. It does not assess your individual case.

Based on the original article by Magnus Hjelmér.