The Philadelphia Inquirer Monday Money Tip column

April 27--Popular 529 education savings plans are even more improved, thanks to Congress' exerting some rare common sense.

Now you can use a 529 account to pay for computers, software, or Internet access expenses for college, and also redeposit money into a 529 plan without penalty if your student withdraws from school.

Last week, U.S. Rep. Patrick McHenry (R., N.C.) introduced legislation to allow 529 plans to pay for certain K-12 expenses, including tutoring, special-needs services, and books.

The bill, H.R. 1928, the Empowering Parents to Invest in Choice Act, also raises annual contributions to Coverdell ESAs (education savings accounts) from $2,000 to $15,000. Stay tuned for updates on the proposed legislation.

Anyone (parents, grandparents, relatives, friends) can contribute to a child's account with after-tax dollars. Earnings are tax-deferred while in the account, and withdrawals are tax exempt when used for "qualified education expenses."

Because 529 plans can grow into a large pot of money, they quickly become the subject of infighting in a family crisis.

Let's say you and your spouse divorce. Your kid's 529 college savings plan is considered a marital asset and should be included as part of the divorce settlement, says Stephanie Henrick with the High Swartz law firm in Norristown.

Many couples forget to include the 529 money in the divorce agreement.

"People incorrectly assume that a 529 plan belongs to the child," Henrick says. "Even though the child is the beneficiary, the money does not belong to the child. It belongs to the account owner, usually a parent. The account owner has complete control of the assets and has the power to withdraw all funds, change the beneficiary, change the successor owner, name a new account owner. If you've made no provisions, it's silent in the divorce agreement."

Swartz watched a good friend lose her children's 529 plan assets to an estranged ex-husband, who drained the account once he remarried.

"The kids didn't find out until they were 18 that they had no money for college," Swartz recalls.

As the price tag for education rises, 529 plans become more valuable. The Treasury Department$88,000 a year, and an Ivy League school will cost approximately $126,000 a year.

The Pennsylvania Institute of Certified Public Accountants will hold a financial-planning conference specializing in divorce in October in King of Prussia. For more information, visit the group's website, www.picpa.org.

earvedlund@phillynews.com

215-854-2808

@erinarvedlund

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